With the majority of Americans pinching pennies to avoid financial catastrophe, the slightest change in budget can have a severe impact. And what if your home mortgage rates go up? A change can leave a family struggling to make ends meet, but you can prepare yourself.
Bracing for a Change in Mortgage Rate
If you've got an adjustable-rate mortgage, a graduate mortgage or a buydown, your mortgage rate is going to increase; it's only a matter of when. Know the terms of your mortgage. Adjustable-rate mortgages typically come with an introductory interest rate, which increases exponentially once the introductory period expires. If you've got an introductory mortgage rate, find out when the rate expires, and plan for that eventuality. The same thing goes for a graduated mortgage or a buydown; you'll know ahead of time that your mortgage rate is going to increase, so you can plan ahead.
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Always Have a Buffer in Your Savings Account
Your savings account is there for many reasons, and it can be the key to surviving a mortgage rate increase. If you've got enough money in your savings account to make up the shortfall in income in the event of a mortgage rate increase, you can survive for a few months while you find a more permanent solution. If you can't afford to pay your gas bill in winter together with a mortgage rate increase, you can use your savings account to help offset the difference until spring comes and your gas rate decreases. You could also rely on savings to get you through tight times until you can find a second job, cut some other monthly bills or take other steps to offset your expenses.
Consider Refinancing If Your Mortgage Rate Goes Up
While refinancing could be a tricky prospect for some homeowners, many can use this valuable tool to cut interest rates before a mortgage rate increase comes. If you know you only have a few months before your adjustable-rate mortgage increases, shop around for a fixed-rate mortgage to replace it. New mortgages can be difficult to find in tight markets or if you've got a high debt ratio, so you can't count on a refinance to get you out of all your mortgage troubles. However, if this is an option that works for you, it can be a valuable way to avoid a mortgage rate increase.
Consider Selling Your Home If You Can
elling your home is probably a last resort, but many people are finding that they cannot handle rising mortgage rates when an adjustable rate mortgage increases. If you'd planned to have a higher income but find you've bitten off more than you can chew, selling your home might be the only way to avoid the terrible burden of rising mortgage rates.
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