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1/11/2013 2:35:53 PM
Ever since the financial crisis, home mortgages have gotten a lot of attention as an incredibly important component of homeowners' overall personal financial situation. With homes representing the bulk of personal wealth for millions of families, making the right decisions about getting mortgage financing for your home is crucial to ensure your financial stability.
In order to make the best decisions, you need to know the hot-button issues that are affecting the mortgage industry right now. With the three tips you'll find in this article, you'll get guidance on three important topics that have made news lately.
1. Should you use an adjustable-rate mortgage
Perhaps because of that, the Consumer Financial Protection Bureau has come out with rules on adjustable-rate mortgages that will take effect at the beginning of 2014. Rather than having banks offer ARMs to customers based on the monthly payment that would apply at the beginning of the loan, lenders would have to have borrowers demonstrate the ability to pay based on the rate that would apply now if the teaser rate didn't apply. Still, some opponents of the measure argue that the CFPB should go further, requiring evidence that homeowners can cover what the payments are likely to rise to based on normal interest rate fluctuations.
With rates on ARMs offering little advantage over fixed mortgages, using an ARM really makes little sense unless you're certain that you'll sell the property before the initial rate on the mortgage ends. Otherwise, take advantage of interest rate certainty and lock in a low fixed rate while you can.
2. Should you pay points to reduce your rate
This strategy, called paying points, will reduce your monthly payment. But in deciding whether it's worth it, you also have to ask how long you expect to keep your mortgage. Many homeowners erroneously figure that if they plan to stay in their house for a long enough period, it'll automatically make sense to pay points. For instance, in the example above, the interest savings from paying a point gets you to break even after four to five years.
Remember, though, that you may want to refinance your mortgage later even if you stay in your home. So that means if you end up refinancing within that same four-to-five-year period, you'll also end up worse off.
3. How will recent mortgage settlements affect you?
According to the OCC, 3.8 million eligible borrowers will receive cash payments totaling $3.3 billion under its settlement with banks. But for current borrowers, the settlement will likely have minimal impact. Hopefully, though, what the settlements mean is that the loan process -- as well as any potential foreclosure process further down the road -- will go more smoothly than it did in recent years.
You can go home again
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Dan Caplinger owns warrants on JPMorgan Chase and Wells Fargo. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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