Financial Security

Manage your mortgage to build financial security

For the financially savvy home shopper, the current housing market downturn offers great potential, not peril. But it does help if shoppers understand how the mortgage process works before they go house hunting.

According to an HSBC North America consumer survey, one out of three people don’t even know if they currently have a fixed-rate or adjustable-rate mortgage. Moreover, three out of 10 consumers surveyed have no idea of what types of fees are associated with their mortgages. Loretta Abrams, senior vice president of HSBC Consumer Affairs, says improving mortgage know-how will help consumers protect their investment.

Before you obtain a mortgage, make sure you understand the following:
• What type of mortgage are you considering? Is the rate fixed or adjustable? What are the advantages and disadvantages to your personal situation?
• What’s the interest rate and how much are the fees associated with the loan? Costs such as points and processing fees can add 2 percent to 10 percent to the loan. You don’t want to be surprised by an extra $2,000 or $10,000 in fees when you close your loan.
• As a general rule, you should spend no more than 28 percent of your gross monthly income on housing expenses. Besides the mortgage, remember to include taxes, insurance and other related expenses.
• If you decide on an adjustable-rate mortgage (ARM), make sure you know when the payment can change, by how much and what the maximum payment can be.
• Do you have money to cover costs if your roof suddenly leaks or your furnace goes out? Set aside an emergency fund (3 percent of your home value) for maintenance and other unexpected costs.

The more you know about mortgages, the better able you’ll be to protect and even improve your investment.

— North American Precis Syndicate