For many Americans, their home equity represents the cornerstone of their personal finances. Fortunately, there are new tools and services designed to help them take control of their finances in the face of rising interest rates.
Whether you're a first-time homebuyer who wants to begin building home equity or you're a seasoned homeowner who wants to understand how to leverage home equity to finance a remodeling project or your child's education, taking control over what you can and cannot do is essential, say mortgage experts.
"Managing your home equity means not allowing interest rates to push you into making a hasty decision," said Jim Ferriter, executive vice president with GMAC Mortgage. "Instead, take a deep breath, contact your mortgage professional and carefully explore your options. And, as it is appropriate, we recommend the assistance of a financial planner or tax advisor to provide additional insights about managing your home equity."
First-Time Homebuyers
For first-time homebuyers, said Ferriter, the two most critical elements to purchasing a home are becoming preapproved, and in a rising interest rate environment, securing a favorable interest rate. In today's real estate market, sellers are extra cautious-before they take their homes off the market, they want confirmation that a buyer has been approved for financing.
In addition to assisting a first-time homebuyer with becoming preapproved for a mortgage, GMAC Mortgage loan officers can offer HomeCommand, a program that protects a homebuyer from rising interest rates by capping the interest rate for up to 126 days.
By capping the interest rate, first-time homebuyers have greater control over knowing what their monthly mortgage payment will be, based on the price of the home they purchase. This knowledge can be very helpful in assessing the price range of the homes being viewed by a first-time homebuyer.
To help homebuyers get a jump on other house hunters, the company also offers access to a free home-finder service, which can alert homebuyers about homes that have just been placed on the market.
For many first-time homebuyers, the next biggest hurdle is knowing whether or not they can manage the monthly mortgage payment on a home that has caught their eye.
While interest rates continue to remain at historically all-time lows, in a rising interest rate environment, Ferriter said, first-time homebuyers, who are often in their late 20s or early 30s, should give additional consideration to such factors as how long they anticipate living in their first home, the growth of their family (need for additional space as the family grows), career and salary growth, and property values of nearby homes.
For some first-time homebuyers, it may be more advantageous in terms of managing their cash flow to consider an adjustable-rate loan versus a 15- or 30-year fixed-rate loan. It all depends on a first-time homebuyer's financial situation.
Existing Homeowners
If you already own your own home and you originally financed it with an adjustable-rate mortgage, now may be the right time to refinance into a fixed-rate loan. The key is to compare the interest rate and monthly mortgage payment, based on the terms of your mortgage (when it adjusts), versus other types of mortgages, including fixed-rate loans.
A service called SmartWatch provides homeowners with periodic information about various ways to leverage their home equity for such things as debt consolidation, college tuition, remodeling or other major purchases. The ser-vice, from GMAC Mortgage, provides alerts when market conditions indicate that it may be a "smart" time to consider refinancing. In addition, it can be used for assessing if a cash-out refinance makes sense or to gain a better understanding of how the growth in home equity, based on property values, may be applied to a future home purchase.
For example, many Generation Xers and baby boomers born in the 1960s are in the thick of saving for retirement while anticipating major milestones such as paying for their children's college education, purchasing a vacation home or paying for a wedding.
By gaining a better understanding of how and when to leverage their home equity, and possibly combining it with mortgage acceleration (adding an extra payment to the principal), these homeowners are able to take more control over their personal finances and prepare themselves to make smarter decisions with less stress.
"We're able to offer the tools and services that allow homeowners to take control and evaluate their specific situation so that they can use their mortgage as a financial tool to meet their goals, regardless of the rate environment," Ferriter said.
By gaining a better understanding of how and when to leverage their home equity, homeowners are able to take more control over their personal finances.
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