Four Tips to Safeguard Your Mortgage

If you're like most people, your home may be your greatest single asset — an investment that will hopefully increase in value over time. You home may also be your largest expense and debt. Safeguarding your investment starts at the beginning, with the mortgage itself. Here are some tips:

1. Shop around for the best mortgage value when buying a home. Factors to consider include:
   
   • Interest rates, points and length of mortgage. Make sure you are comfortable with the mortgage payments from the start.
   • Buy the house you need, with the payment you can afford. And if you think that a few percentage points in the interest rate don't make much of a difference, think again.
   • Always check the reputation and stability of the financial institution. It is common practice among some institutions to sell mortgages to companies which offer limited, if any, service after you sign. Ask before you sign.
2. Shop around for refinancing. With interest rates hovering around 7%, now may be the best time to review your mortgage and see if you can refinance at a better rate — and a lower monthly payment. The rule of thumb is that if you can get a rate at least two percentage points lower than your current one, refinancing may be your best bet.
3. Be aware of the dos and don'ts of home equity loans. Home equity loans have become the primary source of instant cash for many families. But keep in mind that you are actually borrowing from yourself — tapping the equity you have accumulated in your home. There are two types of home equity loans. The first is a fixed loan, the traditional second mortgage. The second is an equity line of credit. Once the loan is approved, a sum of money is ready and waiting for you when you need it. It sometimes comes complete with check writing privileges.

   Consider home equity loans as a source of financing only when:
   

   • You would ordinarily borrow money anyway — such as for home improvements or major repairs, college expenses, a new car.
   • You expect to remain in your current home for several more years.
   • You have a plan — and the means — to pay yourself back. A home equity loan should be used to help you achieve major objectives — not bail you out of trouble. And remember, you are borrowing from your own future.

   Don't consider a home equity line of credit if:
   

   • You are in a financial bind. If you're already strapped for cash, taking on the burden of that extra payment could jeopardize your home.
   • You are thinking about using it to fund a vacation or some other well-deserved treat.
4. Protect yourself and your family with adequate life and disability insurance, in addition to your homeowner's coverage. If you have a mortgage or home equity loan obligation, it is crucial that you carry adequate insurance on household income earners. As long as everyone remains alive and well, the debt will be paid off as planned. But what if one of you dies or becomes disabled? That's where the insurance helps. It can provide needed cash at a critical moment to either pay off the debt or enable your family to continue making payments.

Helpful Hint... Personal Residence Trust
Grantor Retained Interest Trusts are a type of irrevocable trusts for assets that are quickly appreciating in value. Essentially, this type of trust allows you the right to transfer assets, yet receive income from them or use them. The value of your gift will be reduced by the income you receive when it is passed down.

In the Qualified Personal Residence Trust, a grantor with a large residential value donates his or her residence to an irrevocable trust but retains the right to live in the residence for a certain period (again reducing the value of the home by the time he or she uses it). After that term, the residence becomes the property of the remainder beneficiaries (usually the family). With this trust, the grantor's residence can remain in the family while providing a significant estate tax savings, especially if the property appreciates.

There may be current gift tax consequences, but the overall all benefits should be greater than the current taxes. If the grantor dies before the term of the trust expires however, the value of the residence will go back into the estate. If all parties understand the transaction, there usually isn't a problem finding a suitable place for the grantor to live after the trust ends; the recipients might even rent it back to the grantor.

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