Monday, November 26, 2012

How To Prepare Yourself For Mortgage Rate Increases

If your existing home mortgage is a variable rate mortgage, you may be bracing yourself for an upcoming rate adjustment. Rate adjustments can work in your favor in certain instances. For example, if rates have decreased, your mortgage payment may decrease. However, if rates have increased, your mortgage payment may also adjust upward. A mortgage rate increase and the associated increase in your mortgage payment can be difficult to bear. However, by taking a few key steps, you can most easily prepare yourself for this increase.

Understand How Your Payment Will Change

A change to your mortgage payment will affect your personal budget, and you must plan for this change. If you are aware that your mortgage rate and payment are about to change, it is important that you talk to your lender and learn what the rate and payment will adjust to. You will not be able to effectively plan for this change until you know what the change will actually be. In some cases, the change may be nominal. In other cases, however the change can be rather significant. If you are already living on a tight budget, a rate increase can result in financial hardship.

Adjust Your Budget

It is best to make budgetary changes now before your first increased mortgage payment is due. This can prevent you from experiencing financial hardship or a budget shortfall. Review your budget and determine how much money you will need to trim from your expenses to accommodate the higher payment. Then, consider trimming expenses like your cell phone bill, your cable bill, your entertainment expense and others. These expenses are often easiest to trim. However, you can also shop for lower insurance rates, consolidate credit card debt and more to find extra money in your budget.

Refinance Your Home

Another option to consider is to refinance your home with a fixed rate mortgage. Mortgage rates are currently exceptionally low, and with a fixed rate mortgage, you can lock in a low rate for the life of your mortgage. This can prevent the need to make future budget changes if rates adjust again. Even a small adjustment to a variable rate mortgage can have a big impact on your budget. It is important to be aware of pending changes to your mortgage rate and monthly payment if you have a variable rate mortgage. You also need to make changes to your personal budget to account for the change in your monthly mortgage payment or consider refinancing with a fixed rate mortgage. By following these tips, you can avoid experiencing a cash shortfall when your mortgage payment adjusts. For more mortgage tips and information, you can visit www.MortgageRates.ca.

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