Anyone who is thinking about purchasing a home or refinancing one might want to take a look at the calendar. The year 2014 is almost upon us, which means there probably is no better time than the present to take action.
"Be proactive before you get into the New Year," says Aaron Ninness, a Denver-based senior loan consultant with First California Mortgage. "Because there is always a lot of uncertainty at the end of the year, right about now is a good time to set up what you want for next year."
Would you like to end the year on a positive note in regards to your house note? Consider the following list of things to do with your mortgage before 2014.
#1 - Check on whether You Can Drop Mortgage Insurance
Figuring out ways to save money on your mortgage should be a priority for homeowners as the year reaches its conclusion. One of the best ways to do that, according to Ninness, is to find out whether you can drop your mortgage insurance.
"If you can get rid of mortgage insurance that's $198 a month, that's $2,400 in savings a year," Ninness says. "It's real money, not $15 here and there. You can save hundreds or thousands of dollars."
Mortgage insurance, as defined by the U.S. Department of Housing and Urban Development's (HUD) online glossary, is a policy protecting lenders against the losses that can occur if a borrower defaults on the loan. Typically, this type of policy is required for borrowers with a down payment that's less than 20 percent of the home's purchase price, HUD reports.
But, if you have a conventional loan, private mortgage insurance (PMI) can be eliminated once the outstanding loan amount dips below 80 percent of the home's value. Ninness recommends checking with your lender to make sure you aren't needlessly paying for PMI heading into the New Year.
On top of that, Ninness points out that the tax deductions for PMI - and mortgage insurance for federally-backed home loans - will no longer be in effect starting in 2014. So now is the perfect time to get a read on where you stand with your policy.
#2 - Consider Getting a Mortgage Credit Certificate
Are you on the brink of becoming a homebuyer as the year winds down? If that's the case, you might want to look into obtaining a mortgage credit certificate with your new purchase.
According to the California Housing Finance Agency's website, a Mortgage Credit Certificate Tax Program (MCC) is a federal credit which can "reduce potential federal income tax liability, creating additional net spendable income which borrowers may use toward their monthly mortgage payment."
For first-time homebuyers, the MCC program enables them to convert part of their annual mortgage interest into a direct dollar-for-dollar tax credit on their U.S. individual tax returns, the site notes.
"A mortgage credit certificate is typically reserved for first-time homebuyers," Ninness says. He does caution that there is an income cap though that can vary from state to state, so be sure to check with your state housing agency on what that number is.
#3 - Don't Allow Low Interest Rates to Get Away
People who are concerned about rising interest rates might want to consider taking advantage of them before the calendar flips to 2014. The rates were relatively low heading into the final months of 2013, even after some upticks in parts of the year.
"If you're on the fence about interest rates, you might be able to do things now that you [can't] do in January," Ninness says. "You don't want to say, 'I shoulda, coulda, woulda.'"
According to the "Weekly Primary Mortgage Market Survey®" published by Freddie Mac, the average interest rate for a 30-year-fixed rate mortgage on October 31, 2013 was 4.10 percent - the lowest it had been since late June 2013.
So if you're a homeowner whose been putting off refinancing, now may be the time to lock in a low interest rate before they could rise again with the start of the New Year.
Says Ninness of refinancing before 2014: "If it meets your purpose, pull the trigger."
#4 - Get a Second Opinion
Nobody likes rejection, and that could be doubly true when a lender says you don't qualify for a loan. Luckily, there's an old saying that's just right for this kind of situation: "If at first you don't succeed, try, try, try again."
According to Ninness, getting a second opinion might be the best option for potential homebuyers who have experienced some form of rejection at some point during 2013.
"Don't get discouraged or take no for an answer," Ninness says. "Always check somewhere else and find out if there is a way to make it work before the end of the year."
Because lenders can apply loan servicing guidelines in different ways, Ninness says borrowers might benefit from going on a shopping spree for loans heading into 2014.
"You never know what talking to someone else can do," Ninness says. "Some lenders might not be able to refinance [your loan] if you don't have 20 percent equity down, but some can refinance you if you're upside-down or owe more than the house is worth."
#5 - Examine Your Tax Liability
One of the best things about homeownership, from a financial standpoint, is that it can serve as a tremendous tax benefit. On the other hand, it also comes with tax liability that requires your attention -and not just at tax time.
Ninness says the end of the year marks a good time for people to figure out how changes to income levels, new homeownership, or home refinancing in 2013 could affect their tax situation for 2014.
"If you get a refinance before the end of the year, discount points or origination fees associated with the closing costs would be tax deductible for 2013," Ninness says.
#6 - Don't Overlook Second Mortgage Opportunities
Relatively low interest rates heading into the final months of 2013 can provide homeowners with reasons to consider taking out a second mortgage, according to Ninness.
"If you don't want to refinance, don't forget that second mortgages are still available with really good rates," Ninness says. "A good time to get them done is now because we don't know when these opportunities will come again."
A second mortgage, according to HUD, is an additional mortgage on a property that is considered more risky - since it will put you further into debt on top of your existing mortgage, so there's a higher chance of default - for the lender and usually carries a higher interest rate.
But, a second mortgage, such as a home equity loan, could provide a homeowner with much-needed funds for major expenses heading into 2014, Ninness says.
"A second mortgage might work for people who have kids going to college or big home repairs," Ninness says. "Or you could refinance a second loan you already have into something that has a lower rate. It's just about savings."
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