Questions and Answers

Question: With the recent 1,000 point drop in the Dow Jones average, what is a long term investor to do?

Answer: You hit the nail on the head. A long term investor does not go with the "herd". Only consider selling securities where there has been a fundamental change in the company. As you can see from the section of the website "Current Financial Info," the market has come a long way since September of 2006. Don't try to outsmart the market, it is like catching a falling knife. This meltdown in financial confidence will not go away soon. Be patient and stay the course.

Question: What do I do as my adjustable rate mortgage is about to adjust next year.

Answer: With the current turmoil in the mortgage market, this is not a good time to refinance. Be patient, let things get back to a sense of calm. The mortgage market should stabilize and that's the time to look at a fixed rate option.

Question: We have an investment condominium for sale but because of the mortgage market uncertainty, we have interested buyers but they are reluctant to go into the mortgage market now. We own the property free and clear.

Answer: This is a common problem in today's market. If this property is one you don't need all the proceeds from now, consider taking back a mortgage. No I am not kidding, this is a great way to move the property and to get a steady stream of income. The caveats are:

Get a minimum of 15%-20% down to cover real estate commissions, closing costs, etc.
Have an attorney prepare the mortgage. (This is worth the extra cost.)
Charge a fair interest rate, but higher than regular bank mortgages.
Give buyer right of prepayment at any time. This will allow you to get all your money when mortgage rates drop and buyer can refinance at a lower rate.
Get a credit report on the buyer.
Be sure you are payee for losses on property insurance and that the buyer has proper coverage.
Get a paid copy of the annual property tax bill from the buyer.

Question: I will be a 1st time home buyer. Am I shut out of the market because of the problems in the mortgage market as I am unable to put more than 5% down?

Answer: It's going to be a lot tougher than before, but that change is for the better. You don't want to get into a property you cannot afford. There are programs for the 1st time home buyer with decent credit. Check with financial institutions in your area. Here is a thought, if there is a pre-owned property for sale, or a foreclosure, maybe the owner or bank will take back a purchase money mortgage. It never hurts to ask.

Question: How do you shop for a mortgage today?

Answer: Carefully. The wide open, anything goes days in the mortgage market are hopefully gone forever. Here are some tips:

Try and make as much of a down payment as possible. Remember any less than 20% means you must take out private mortgage insurance for the lender and this adds at least ¼ of a point a year to your cost. This continues until your loan to equity goes over 20%.
Avoid hybrid loans which combine 1st and 2nd liens.
Don't avoid adjustable rate mortgages just because of the adjust factor. Look at your own circumstances. Only consider ones with reasonable upside rate caps. Avoid all teaser rates which start out way below market and jump up quickly. This is a loaded gun.
Deal with well known financial institutions. Get everything in writing. Do not rely on verbal promises and conjecture. KNOW WHAT YOU ARE SIGNING!
Check your credit score. This is very important in today's market as the higher it is, the better mortgage rate you qualify for.
Do your homework.

... courtesy of DirectAdvice Poll

Question: With interest rates reduced again, how do I decide if I should refinance my home mortgage?

Answer: While it might seem logical at first blush to refinance - isn't every doing it? - it actually doesn't make sense for everyone.

Refinancing means paying off your old loan and getting a new first mortgage. It means reducing your interest expense, and often trimming monthly payments, sometimes by hundreds of dollars a month. But with refinancing could come fees, points, a credit check, and possible tax consequences. That means you need to run the numbers to see if it makes sense for you.

Here are some issues to consider:

How long will it take to recoup refinancing costs?
How much time is left on your existing mortgage? If you're close to paying off your home, you might not want to start over.
What's the spread between your mortgage rates and current rates? If it's at least 2%, it could be time to refinance.
How long will you be in your home?
Has your credit rating improved? You might be able to get a better rate.
What are the tax implications? Your deductions can be affected.
Lost opportunities. Would the money you spend on refinancing costs earn more elsewhere?
If your goal is to shorten the length of your loan, can your budget handle higher monthly mortgage payments?

You must also decide how to refinance - whether to switch from a fixed to an adjustable rate mortgage, for instance. Ask your professional advisor for help.

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