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Hurricanes are powerful, dangerous storms. The national weather services and other agencies provide excellent information regarding a Hurricane’s strength and projected path. Nevertheless, Hurricanes by their very nature are unpredictable and can gain or lose strenght without warning.

Homeowners anywhere in the vicinity of Katrina’s path need to make preparations to protect themselves and their property. First, if evacuation is recommended, you should leave the area. The following link will give you a copy of The American Red Cross Hurricane Evacuation Plan and a preparation checklist.

If evacuation is not recommended for your area, make sure all yard furniture, decorations, tools, etc. are stored and/or secured against the heavy winds. If you live near water or in a low lying area, take precautions to avoid flooding. Stay alert! Hurricanes spawn flash floods and tornados suddenly. If it is possible you will lose electricity, have emergency lighting, food, and water stocked. Stay indoors with your family and pets during the storm.

With the strength of recent storms and their movement farther inland, they are devastating areas previously untouched by such storms. Stay tuned to local and national weather stations to be sure you have the latest information and recommendations for your area.

For more information on preparing for Katrina and protecting your home, visit the Red Cross or the Weather Channel websites. If you are not at risk, but wish to help victims of Hurricane Katrina, the Red Cross website can provide information on disaster needs and donations.

Economic conditions in the U.S. have continued to fluctuate, gas prices have continued to increase and the movement of short and long-term interest rates has baffled most experts, let alone consumers. Housing prices have soared upward while wages have remained fairly stagnant. Where does this leave us?

Greenspan’s comments on Friday warned “that recent gains in U.S. home prices, stock values and other forms of wealth may be temporary, and could easily erode if investors become more cautious.”

In addition, recent reports indicate that Americans are farther in debt than ever before, to the tune of about $11 trillion. Instant credit, interest-only payments, low starter interest rates, etc. have played a major role in the creation of all this debt.

The refinance boom of the last few years was fueled by record low interest rates. Now, however, may be the time for all those homeowner’s who have those interest-only pay-option ARMs to seriously consider refinancing into a fixed rate. As interest rates continue to climb, there may not be another opportunity to get a 30-year fixed rate mortgage below 6% for a long time to come.

As rates were on a downward trend for several years running, those ARMS seemed to be a reasonable choice but when the trend shifts in the other direction, they may pose a serious financial risk to many homeowners. How do you determine if refinancing now is right for you? Consider the following questions:

1. Has your rate adjusted upward a half-point or more in recent months?

2. Are you nearing the end of your “fixed” period on an adjustable rate loan?

3. Do you have a pre-payment penalty?

4. If your interest rate increases more than one point, will your monthly payments still be affordable?

5. If you are in an area where the housing market is beginning to cool, will your home’s value be in jeopardy of going down?

6. If you bought with 100% financing, will you have any equity in your home if the market cools?

7. Do you have enough savings to support your monthly bills for several months if you are suddenly unemployed or disabled?

After asking and answering these questions, think about what you could reasonably afford for a mortgage payment. If an increase of one or two points in interest rates would make your monthly payments uncomfortable or even difficult to meet, you may need to refinance now, rather than risking a higher rate later.

Negative Amortization is when the balance of a loan increases instead of decreases. Usually due to a borrower making a minimum payment on an Adjustable Rate Mortgage during a period when the rate fluctuates to a high enough point that the minimum payment does not cover all of the interest. This is one of the biggest risks of interest-only loans with payment options for borrowers that fail to pay any amount to the principal over the course of their loan.

If your property is in an area that is appreciating rapidly, this may not seem like a reason for concern. However, since markets are always changing, it is impossible to be certain that you can be assured of an increase in equity based on appreciated value alone.

If you make minimum payments and they don’t cover each month’s interest, that will be tacked on to the principal balance. Over time that can mean a significant increase in your loan amount. If property values don’t keep up or worse decline, you may find you owe more than you originally paid or more than you can sell it for at current market value.

Be very sure that you thoroughly understand the risk of negative amortization anytime you are considering an adjustable rate mortgage. While loans programs offer multiple options both in terms and payments, you should always base your decision on worst-case scenario. If you opt for an interest-0nly loan, make some payment to your principal balance on a regular basis and you will be much less likely to experience negative amortization on your mortgage.

Should you consider financing closing costs, escrow reserves, or other cash needed at closing?

If you’ve built up some equity in your home, when you refinance, you may be able to “cash out” some of that equity to pay off credit cards or other revolving debt, improve your home, help pay for college, or anything else you can think of. The same is true of refinancing costs: If you have enough equity in your home, you may be able to roll some of the cash due at closing into your loan.

Some of the “cash needed to close” as it’s sometimes called includes settlement costs and fees, prepaid interest, escrow reserves, state or local government charges, or even extra funds needed to pay off your existing mortgage. Some or all of those costs can sometimes be financed as part of your new mortgage loan.

But you have to be careful. It’s not always the case that you can borrow up to 100 percent of your home’s value. Many loan programs are based on what’s called a “loan-to-value” ratio. You may qualify for a very advantageous refinanced mortgage if you borrow no more than 80 percent of your home’s value, but may not qualify for the same terms if you borrow 90 percent. Your mortgage professional can help qualify you for refinance loan programs for as much as 95 percent of your home’s value in most cases, but the lower your loan-to-value ratio (that is, the less you borrow), the better terms you’ll generally qualify for.

The bottom line is that in many cases you can reduce your up-front costs for refinancing your mortgage in exchange for higher monthly payments for the life of the loan. But whether, and to what extent, you can do this depends on the value of your home and the amount of your new mortgage, and what options you decide are best for you.

If you’ve had your current mortgage for a few years, chances are you’ve built up enough equity to finance cash needed to close and still have a smaller loan balance than your original — and a balance that will qualify you for a favorable mortgage program tied to your loan-to-value ratio.

Many people find that it’s advantageous to pay the cash needed at closing from checking, savings or money market accounts or from other assets. This is because the less you borrow on the new refinanced loan, the lower your monthly payment will be. Your mortgage professional can help you decide what’s best for you!

This information provided courtesy of the Premier Mortgage Source website.

One of the newest issues with many loans today is lenders reviewing and rejecting appraisals. The appraisal is a ‘’defensible'’ and carefully documented opinion of value. Most commonly derived using recent sales of comparable properties by a licensed, professional appraiser. Since the real estate market has been extremely heated in my area, property values have soared at a rapid rate. Lender’s are beginning to question these values and whether or not they’re realistic.

I believe it’s important for buyers to know that even if you do get a good appraisal and believe the value to be reasonable, lenders have the last word. As they review and underwrite your loan, they also review the appraisal. These days if there is even the slightest question as to value or future re-sale potential, many lenders will reject the appraised value and sometimes they reject the appraisal completely.

Although it’s not a frequent occurrence for an appraisal to be outright rejected by a lender, it does happen often enough for buyers to need to know it’s a possibility. It may not even be a question about the value of the property, the lender could reject an appraisal because it includes other information that makes them wary of underwriting the loan.

When an appraisal is rejected by a lender after a buyer has been approved for the loan, it is not a reflection of the buyer’s credit worthiness, it is merely a reflection of the lender’s discomfort with the property itself. Should you find yourself at the end of the loan process and discover that the lender has rejected the appraisal, your best bet is to shop for another property. With industry underwriting guidelines reflective of Fannie Mae and Freddie Mac’s standards, the likelihood that you’re going to find another conventional lender to do the loan is slim.

If the lender rejects the value given by the appraisal, you can still move forward with your loan but it may mean that you, as the buyer, have to pay the difference between the lower value and the sales price out-of-pocket to the seller, if the seller is unwilling to reduce the price.

What does it cost to refinance? What are the benefits?

Ever heard the old rule of thumb, you should only refinance if your new interest rate is at least one point lower? That may have been true years ago, but with refinancing dropping in cost over the last few years, it’s never the wrong time to think about a new loan! Refinancing has a number of benefits that often make it worth the up-front expenditure many times over.

When you refinance, you might be able to lower your interest rate and monthly payment — sometimes significantly. You might also be able to “cash out” some of the built-up equity in your home, which you can use to consolidate debt, improve your home, pay college tuition — whatever! With lower rates and balances, you might also be able to build up home equity faster with a shorter-term new mortgage.

All these benefits do cost something, though. When you refinance, you’re paying for most of the same things you paid for when you obtained your original mortgage. These might include settlement costs and other fees, an appraisal, lender’s title insurance, underwriting fees, and so on.

You might have to pay a penalty if you refinance your previous mortgage too quickly. That depends on the terms of your existing mortgage. These penalties are illegal in some places, and more often than not, if there is a pre-pay penalty it’s only for the first 2 to 3 years. Your mortgage professional can assist you in determining if your current mortgage has a pre-payment penalty prior to your decision to refinance.

You might pay points to get a more favorable interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the life of the new mortgage can be significant. You should be aware that the IRS has recently said that points paid for the purpose of refinancing your mortgage cannot be deducted in their entirety in the year you pay them, unless the refinanced loan is primarily for home improvements. Consult your tax professional before deducting points you pay on your new mortgage from your federal income taxes.

Speaking of taxes, if you lower your interest rate, naturally you will be lowering the amount of mortgage interest payments you can deduct from your federal income taxes. This is another cost that some borrowers should consider.

Ultimately, for most people the amount of up-front costs to refinance are made up very quickly in monthly savings. Your mortgage professional should work with you to determine what program is best for you, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your taxes.

This information is provided courtesy of the Premier Mortgage Source website.

Taking out a second mortgage on your home used to carry some stigma with it – a sign that you were in financial trouble. But today, the ability to borrow money against your property is considered one of the biggest advantages of owning a home. A second mortgage is essentially a loan secured by your home or another piece of property with a first mortgage. The second mortgage allows the homeowner to tap into his or her equity to pay for college tuition, essential home improvements, pay off credit card balances or other pressing financial needs.

Because there is more risk involved with a second mortgage, the lender’s conditions are usually more stringent, the term is shorter and the interest rate is higher than for the first mortgage. In the event of default, the holder of the second mortgage is subordinate to the first.

To qualify for a second mortgage, your credit must be in good standing and you must be able to document your income. In many cases, a current appraisal will be required on your home to determine the home’s market value.

By definition, a second mortgage is any loan that involves a second lien on the property, but you generally have two options: a home equity loan or a home equity line of credit.

Both options combine your first and second loan, so your loan will usually be limited to 75 to 80 percent of your home’s appraised value. Although, there are some programs which will let you borrower over 80 percent. With a home equity loan, you borrow a lump sum of money to be paid back monthly over a set time frame, much like your first mortgage. However, the closing costs (often 2-3 percent of loan amount) are often higher than your first mortgage and the rate - usually fixed – is also higher.

A home equity line of credit (HELOC) is an open line of credit tied to an equity-based maximum loan amount. You may use the account for a set period of time (5, 10 or even 20 years) as long as there are funds. Once your predetermined time period is up, you will be required to pay off the loan, making monthly payments on the principal and interest. The interest rate can fluctuate month to month on a home equity line of credit, which makes this option appealing when interest rates are low, but risky when interest rates increase. The fees to open a HELOC are often lower than those associated with a home equity loan.

When deciding what type of loan is best for you, it is important to consider how you will use the money and how you intend to pay it off. Do you need money in one lump sum or intermittent over several months or years? Do you want a fixed interest rate so you can repay your loan in precise monthly installments or would you rather have the flexibility to make any size payment above the interest-only minimum? In today’s competitive market, there are many options available. Talk to a mortgage professional to find the right mortgage product for your lifestyle and financial needs.

This information is courtesy of the Premier Mortgage Source website.

What is the difference between the interest rate and the A.P.R.?

You’ll see an interest rate and/or an Annual Percentage Rate (A.P.R.) for mortgages or credit cards advertised. Federal law requires lenders to disclose both.

The A.P.R. is a tool for comparing different rates with different lenders. The A.P.R. is designed to represent the “true cost” of interest to the borrower in the form of a yearly rate.

While it’s designed to make comparisons easier, it’s sometimes confusing with mortgage loans. A.P.R. associated with mortgage include other expenses of the loan. Certain fees and insurance premiums get converted into the A.P.R., but are not represented in the basic interest rate on the mortgage. The lack of federal definitions for what goes into the calculation, the calculation of the A.P.R. can vary greatly from lender to lender.

So, A.P.R.s are not always a clear indicator for comparison shopping. In order to be assured of comparable mortgage options and getting the best loan for your financing needs, you need a mortgage professional to help you.

Also note that often advertised terms and rates do not include information on loan terms such as balloon payments or prepayment penalties, or how long your rate is locked. A.P.R.s will be higher on 10 or 15 year mortgages, even if the interest rate is lower than that of a 30 year mortgage, because it’s amortized over a shorter period of years.

Once you have closed on a mortgage, lenders will frequently sell the loan to another lender or servicing company. Like the original lender, a servicing company is set up to collect your monthly payments as well as manage your escrow account. Many of my clients worry about potential problems with having their loan change hands.

Over the years, your mortgage has the potential to be sold several times. Before any transfer of servicing, you must be notified in writing of the change and its effective date. From the effective date forward, you are responsible for making your monthly payment to the new service provider. The written notice should include the following information:

1. Name and address of the new mortgage servicer.
2. The last date your current mortgage servicer will be accepting your mortgage payments.
3. The date your new mortgage servicer will begin accepting payments.
4. Free or collect telephone numbers to call for more information about the transfer of service for both your current and new mortgage servicers.
5. Notice of whether you may continue any option insurance (such as disability insurance). Also what action, if any, you have to take to maintain coverage. As well as whether the insurance terms will change.

Never at anytime your servicing is changed to another company can the terms and conditions of your original mortgage be changed. The only exception are any terms and conditions related directly to the servicing of the loan.

You have a grace period of 60 days after a transfer of servicing to protect you from a late charge if you send your mortgage payment to the old servicer by mistake. Additionally, the new servicer cannot report a late payment to the credit bureaus for 90 days following the transfer.

Should the transfer result in a problem with your payment history, contact the new servicer in writing. While the dispute is being investigated, be sure to continue to make your payments timely. All disputes must be addressed by the new servicer within 60 days.

Reverse mortgages (also called home equity conversion loans) are loans designed to enable elderly homeowners to tap their equity without selling their home. With this loan, the borrower receives a lump sum, a monthly payment or a line of credit based on the amount of equity in the home.

There is no repayment on this loan unless the property is sold, the owner moves into a retirement community or dies. When the home is sold or is no longer the owner’s primary residence, the owner or owner’s estate the repays the money received plus interest and any other finance charges.

As a rule, in order to qualify for a reverse mortgage, the borrower must be 62 or older, have little to no mortage on the property and continue to maintain it as their personal residence.

Reverse mortgages work well for retired or elderly individuals that want to tap the equity they’ve built in their homes to meet their current financial needs. Whether the interest rate is fixed or adjustable depends on the program and lender. Monies received from a reverse mortgage are not taxed nor do they affect medicare or social security benefits.

Unlike other mortgages, the lender cannot take over the property if the owner outlives the loan. Additionally, owner’s with reverse mortgages cannot be forced to sell their homes to pay off the loan even if the loan balance ultimately exceeds the property’s value.

To determine if a reverse mortgage is right for you or a family member, talk to a mortgage professional as well as your legal advisor.