It’s the New Year – 4 Steps to a Healthy Mortgage

(as appeared in Daily Camera 1/29/06)

By Norm Sydow - Apple Street Mortgage

The New Year is upon us and, along with your renewed resolve to exercise more, eat right, and throw out old magazines, it’s time to check up on your home mortgage – or lay the groundwork for getting a new one.    Here are a few simple steps to take to ensure that your mortgage and credit are as healthy as they can be.

1. Is your interest rate in line with the current market?  The old rule of thumb about rates having to drop one or two points before it is profitable to refinance is hopelessly outdated.  If you can refinance without paying any fees, it may make good sense to do it, even if you can decrease your rate by only 1/4% or 1/8%.  Your monthly savings could be used to pay your mortgage off sooner or pay your cable bill for the rest of your life. Of course, paying some fees in exchange for an even lower rate may have a benefit long term but, with a no fee loan, you will realize the gains immediately rather than having to wait several years for your monthly savings to eclipse your costs.  Check with your lender to see what makes the most sense for your particular situation.

2. Does your current loan program meet your needs? The loan product that made sense only a short time ago, may not provide the best solution today.  For instance, if you have an adjustable rate mortgage (ARM) that is due to adjust soon, you may be better off with a fixed rate since ARM rates have increased dramatically over the last couple of years while fixed rates have not.  And rates on home equity lines of credit have risen substantially in the last two years.  If you have one of these, it may be beneficial to roll this amount into a new first mortgage.

3. Is your credit healthy? A simple credit checkup could end up saving you headaches and thousands of dollars. Go to “www.annualcreditreport.com” to receive your credit report. It costs a few dollars to actually get your score – but this may be a great investment.  A good mix of credit consists of an installment loan or two, and two or three credit cards with a record of on-time payments, and an exemplary mortgage payment history if you have one.  Keep your accounts current (30-day lates are a killer – especially on your mortgage) and don’t max out your credit cards.  It is far better to have three cards with a low balance, than two cards with balances that push your credit limit. 

4. Should you make extra principal payments?  This is a tough one.  Most of us have heard somewhere that making even one extra payment per year can reduce the term of our mortgage by many years – saving many thousands in interest.  And this is true.  It also enforces some savings discipline.  But the flip side is that your extra cash may be better spent elsewhere (words like 401K, IRA, and credit card debt come to mind).  But if you do choose to pay extra principal, you can easily do it yourself without paying for a biweekly payment service.  There’s really no magic to it.  Many mortgage calculators exist on the web to help you, or check with your lender.

New Year’s resolutions often fall by the wayside by February, but some attention paid to these important financial matters now may result in benefits that you can reap over and over!

Norm Sydow is the owner of Apple Street Mortgage. He specializes in residential new purchases and refinances, and sound financial advice. He can be reached at 303-666-9804 or online at loans@AppleStreetMortgage.com.  Or visit www.AppleStreetMortgage.com