It’s late, and it’s limited, but for borrowers who feel their homes were wrongly or inappropriately foreclosed upon in 2009 and 2010, there is now recourse.

As part of a larger enforcement action (so-called “consent orders”) taken last April against fourteen of the nation’s largest mortgage banks/servicers following the so-called “robo-signing” scandal, the Office of the Comptroller of the Currency is beginning a “multi-faceted independent review of foreclosure actions.”

The major banks will have to fund these independent reviews to evaluate, “whether borrowers suffered financial injury through errors, misrepresentations, or other deficiencies in foreclosure practices.” If they did, those borrowers get some kind of “remediation.”

“The challenge is substantial, but the steps we have required the servicers to take are vitally important to resolving these issues in a way that respects the rights of those who have been harmed and helps to restore confidence in the system,” said John Walsh, Comptroller of the Currency in a statement.

The major mortgage servicers began sending out letters to eligible borrowers this week to explain the process. The requests for the reviews must be received by April 30, 2012. So how many do they expect will request these reviews, given that there are potentially four and a quarter million eligible borrowers according to the OCC?

“It could be hundreds of thousands,” Walsh told me in an interview this morning. “We are certainly hopeful they will have the capacity to handle it,” he added with regards to the servicers. Walsh also admitted that if the volumes are very high, it could have an impact on the current foreclosure process at major servicers, “to the extent that capacity that servicers have that they’d otherwise devote to other parts of the business are affected.” But he stressed that this is a backward looking, remedial piece and “shouldn’t” affect current foreclosure cases.

So could a borrower get his or her home back? It’s not out of the realm of possibility, although that is pretty unlikely given the home was probably already legally sold to someone else. Remediation would more likely involve fees that could be paid back or some other type of monetary compensation. No question it will be highly case-specific.

“The participating mortgage servicers remain committed to helping borrowers remain in their homes and have been working with federal banking regulators to resolve the issues raised in the consent orders,” explained Paul Leonard of the Financial Services Roundtable in a release. The reviews, he adds, could take several months to complete.

Challenge Your Foreclosure Now was provided by CNBC.com.

Many homeowners with a 30-year mortgage don’t realize how much they are paying in interest. This is the problem. The solution for many is to accelerate the payment, either by paying more principal each month or by entering into a shorter repayment contract. The best-known among these is the 15-year term.

An example: If your mortgage balance starts out at $100,000 and your loan is written at 5% interest, the 30-year term requires a monthly payment of $536.83. Over 30 years, the total of all payments adds up to just under $193,259. That’s a 93% premium in interest payments – on top of the mortgage balance.

It gets worse. It takes more than 20 years to pay off  half of the debt. The other half is paid over the last 10 years. In fact, a 30-year term amortizes so slowly that after five years (60 payments), you still owe 92% of the original balance. When you consider that the average first-time buyer keeps that home less than five years, this further makes the case that a 30-year mortgage is too expensive.

The Advantages of a 15-Year Mortgage

Now think about a 15-year term. That $100,000 mortgage at 5% repaid over 15 years costs $790.80 per month, which is $253.97 more than the 30-year term. So, you have to be able to make that higher payment. For many, though, the comparison between house payments and rent makes this higher payment easier to bear. This is especially true when you also take into account the federal and state tax benefits of deducting interest. If your combined federal and state tax rates add up to 32% percent, for example, your after-tax cost for the 15-year mortgage is reduced to $538. This is about the same as the 30-year payment and comparable to a $538 rental each month with no tax benefits.

Over 15 years, the total of your payments on a $100,000 mortgage comes out to $142,344 – or about $50,900 lower than the cost of a 30-year mortgage. And the acceleration is much better as well. After five years, you will have paid off about one-fourth of the debt, compared to only about 8% with the 30-year term.

Another advantage is that lenders often will offer a lower interest rate on the 15-year than on the 30-year contract. A one-quarter percent reduction is worth about $14 per month. Over 15 years, that equals $2,500. However, the faster payoff has to be practical. If you cannot afford the higher payments even after tax benefits, it will not make sense for you to agree to the shorter term. But as long as that is affordable, it makes sense and saves money.

If you cannot afford to go as low as 15 years, you can enter a 30-year mortgage and add extra payments based on what you can afford. For example, adding $48 per month to the 30-year payment reduces your repayment term five years. It also saves about $18,000 in interest expense. If you increase the 30-year payment by $123 per month, you cut 10 years off the repayment and save nearly $35,000 in interest.

Michael C. Thomsett is author of over 60 books, including Annual Reports 101 (Amacom Books Press), Trading with Candlesticks (FT Press) and the recently released new book, Getting Started in Stock Investing and Trading (John Wiley and Sons).  He lives in Nashville, Tennessee and writes full time.

With mortgage interest rates recently touching their lowest in more than 50 years, many homeowners are asking themselves if now is the time to refinance.

After all, it’s hard not to swoon at the thought of a 30-year fixed mortgage at 4.15 percent (the average rate for the week ending August 18, with 0.7 points, according to Freddie Mac), or 3.36 percent with an average 0.6 point for a 5/1 ARM.

With a $200,000 balance, a homeowner refinancing at those rates would get a $972 monthly payment at 4.15 percent, or $883 if they went with the 5/1 ARM. Assuming they currently have a 6 percent mortgage loan, a refinance would save them $227 or $316 a month, respectively. Heck, even if the original mortgage rate was 4.5%, they would save $41 or $130 a month.

But whether a mortgage refinance makes financial sense isn’t solely determined by interest rates and monthly payments.

For years, homeowners have been conditioned into thinking that low interest rates are the main reason to consider a new mortgage – but all those radio and TV commercials don’t tell the whole story.

One way to understand whether you are truly better off refinancing – or if you should spare yourself the trouble and stick with your existing mortgage – is by calculating the so-called net benefit.

What is “net benefit”? It’s a way of forecasting your actual costs, payments and balances for years ahead, to see which loan leaves you with more money in the bank.

Don’t worry: it sounds more complicated than it really is. Here’s how your can determine the net benefit of a mortgage refinance.

Can You Be Worse Off with a Lower Rate?

Most people don’t think that’s possible, but the reality is that a lower rate does not necessarily mean an overall benefit to you. Here’s an example.

Let’s say your current mortgage rate is 4.5 percent. That’s a pretty good rate, but the current rates are even better. Your loan officer tells you that he could get you a refinance that would reduce your rate and lower your payment. You tell him that you’re planning on selling your house in 13 years, so it may not make sense with all of the costs involved. Your loan officer says not to worry: he can get you a 30-year fixed at 4.25 percent–and he will take care of all of the costs. It’s a no brainer: you get a lower rate at no cost.

Sounds like a good deal, right? Not necessarily.

Let’s make a few more assumptions. For example, say your original loan amount was $200,000 and you’ve had that loan for 10 years. (Yes, we realize that mortgage rates were higher than 4.5% a decade ago, but remember that we’re using those numbers to help illustrate how net benefit works.)

So your current loan has a payment of $1,013 per month. Over the past 10 years, you’ve paid the balance down to $160,179. If you refinanced today to a 30-year fixed $160,179 loan at 4.25%, you will have a lower payment, $788 per month.  (There are plenty of online tools to calculate a mortgage payment based on loan balance and interest rate, you can use this one at SmartMoney.com.)

So over the next 13 years, you will save $225 per month.  Lowering your mortgage payment is no doubt a good thing, because you can invest that money and make it grow. Let’s assume that you put that money you save every month into a savings account earning 2% interest, and in 13 years it will grow to $40,047. (Use this calculator if you’d like to change any of those assumptions and figure out how much your monthly contributions will grow.)

So you will definitely have more money in your savings account that will come in handy when you retire, but that is only half of the story. The other half is what happens to your remaining principal balance. Thirteen years from now, your original loan would have a remaining balance of $72,904.  The refinance loan would have a remaining balance of $114,324. In short: your balance would be higher by $41,420.

The reason for this is the amortization schedule. On you original loan, you had already gotten past the years of relatively little principal reduction and your loan was really starting to pay down. On your new loan, the clock starts over and you revert back to a minimal principal pay down that occurs at the beginning of a 30-year loan. So while you were reducing your payment with the rate, you were also reducing the amount of that payment that was going to principal.

Long story short: if you refinanced, you would have $40,047 more in a savings account, but $41,420 less in equity.  Assuming you sell the property in 13 years as planned, you would be $1,373 worse off with a refinance than if you did nothing at all. It seems counter intuitive to most homeowners, but it’s true.

The Point of Calculating Net Benefit

If lowering your rate or payment could theoretically make you worse off, how would you design a system that could account for this? That is one of the main purposes of calculating net benefit: using the actual costs and benefits of each loan, adjusted for your time horizon.

With mortgage refinance (or any refinance loan for that matter), it ultimately comes down to the difference between payments and closing costs, adjusted for time and the net effect on principal balance in the end.

So the next time a loan officer calls you to see if you are interested in refinancing to today’s low interest rates, ask him to calculate the net benefit for you. He’ll probably tell you that he’ll need to get back to you. If he does ever get back to you, ask him to run net benefit numbers with every other loan product that is on the market today so you can compare.

Should You Refinance Your Mortgage? was provided by CreditSesame.com.

It’s June, so that means neighborhoods across the country are dotted with “Open House” signs all weekend. Thanks to a drop in home prices nationwide, it’s a buyer’s market. But the mortgage meltdown of 2008 taught us all that home ownership isn’t something to be taken on lightly and many have rediscovered the flexibility and simplicity of renting.

As part of an ongoing series, we asked Mint users and fans for their top home-buying questions and forwarded them on to some industry experts at CreditSesame.com. Click on the video above to find out the answer to the burning question: When is it better to own a home than to rent?

As part of an ongoing series, we asked Mint users and fans for their top home-buying questions and forwarded them on to some industry experts at CreditSesame.com. Click on the video above to find out the answer to the burning question: Do I really need a full 20 percent down payment to get a mortgage?

According to a popular study by Moshe Milevsky, choosing a variable rate has saved home owners money nearly 90 percent of the time. Sounds like an easy decision then, right? Not exactly.

This Time it’s Different

Interest rates are still at historic lows, with most experts predicting that rates will increase at least 1-2 percent over the next two years.  Five-year fixed rates are currently under 4 percent, which is definitely an attractive rate to lock into and protect against the risk of future interest rate hikes.

But if the math favours choosing a variable rate mortgage over time, why are people so divided on this issue?

The vast majority of Canadians still choose the five-year fixed term. Proponents of fixed interest rates enjoy the peace of mind knowing that their payments won’t change and they also feel that we are in one of those rare situations where locking into a five-year term will save home owners money.

Since variable rates are always initially cheaper than five-year fixed mortgage rates, the decision ultimately comes down to saving money now vs. the potential of saving money in the future if interest rates go up.

What Options To Consider?

Let’s take a look at some real numbers to help make our decision. These are the current interest rate options for us, along with some pros and cons to consider:

• - Five-year variable interest rate = 2.20 percent (prime minus 0.80 percent) – As I mentioned, this is likely the smart choice since the variable rate has saved money nearly 90% of the time vs. a fixed rate. However, this time could very well be different, and if interest rates climb quickly back to historic levels this can become a losing proposition.
• - Five-year fixed interest rate = 3.89 percent – All things considered, a five-year fixed term under 4 percent is extremely low and would give us the peace of mind knowing that our payments wouldn’t increase even if interest rates soared. On the downside, by choosing this option we would be paying $260 more per month than if we went with the variable rate.
• - Three-year fixed interest rate = 3.54 percent – This option would give us the flexibility of not locking into a five-year term and also benefitting from a 0.35 percent discount over the five-year term. The monthly payments would still be $200 more than the payments on the variable rate.
• - 1 year fixed interest rate = 2.64 percent – This option might be the best for us if we feel this is still a period of uncertainty. We would maintain our negotiating power after just one year and we also benefit from a 1.25 percent discount off the five-year fixed rate. But if interest rates were to rise quickly over the next 12 months we would still have to renew our mortgage at a higher rate when it came due.

As you can see, the five-year fixed rate has a built-in premium of 1.69 percent over the best variable interest rate. If the Bank of Canada decided to raise interest rates fairly quickly and aggressively over the next few years, the five-year fixed rate would likely be the better option.

Economic Factors at Work

The Bank of Canada meets eight times a year to make interest rate announcements and historically will move the rate by 25 or 50 basis points (0.25 or 0.50 percentage points) at a time. There is definitely the potential for interest rates to move between 2 – 3% in a single year.

The problem is, we are not very good at predicting where interest rates are headed. When it comes to monetary policy, there are a lot of moving parts to consider. It’s not as simple as just trying to contain inflation or trying to prevent a housing bubble.

Think of the soaring Canadian dollar. If interest rates were to rise sharply, the loonie would continue to climb vs. the American dollar, which puts increasing pressure on our manufacturing sector that relies heavily on exports.

Interest rates are indeed at historic lows but, with the outlook of the world economy still very uncertain, it is likely that the Bank of Canada will continue to move cautiously to avoid triggering another recession.

The Affordability Factor

Ultimately, whatever we decide to choose will carry some risk. Often the fixed vs. variable interest rate question is more about affordability than anything. Can your budget handle a 2 percent – 3 percent hike in interest rates? If not, then the fixed rate gives you that peace of mind to know that your payments won’t change for five years. If you can handle an increase in mortgage payments then you might find a great opportunity to save thousands of dollars in interest over the life of your mortgage by choosing the variable rate.

In our case, I think we are leaning toward the five-year variable rate, but with a twist. We will set our payments as if we were paying a 4.5 percent interest rate. This way we will be knocking years off of the overall amortization of our mortgage while saving thousands of dollars of interest. And we will still have the peace of mind knowing that we have built in a 2.3 percent cushion into our monthly payments in case interest rates rise.

What do you think of our plan? If you had to renew your mortgage today, what option would you choose?

Robb Engen writes about Canadian personal finance at Boomer & Echo. Together with his mom, (she’s the Boomer, he’s the Echo) they offer their own unique perspectives on saving, investing and personal finance.

Photo: iStockphoto

Renting was once a temporary housing situation until one could save money to buy their own home. But, today’s renters are increasingly former homeowners who no longer believe that owning a home is a wise investment. The Fannie Mae Q4 2010 National Housing Survey indicates that 28 percent of renters surveyed believe that renting makes more financial sense than owning a home, up eight points from January 2010. There’s also been a five-point rise since January 2010 in current renters who say they’re more likely to rent for the long-haul.  Survey respondents also expect that rental prices will increase by 2.8 percent, on average, over the next year.

For homeowners unable to sell their property at a reasonable price, renting could be the way to waiting out a lagging housing market. But, becoming a landlord involves far more than handing over the keys and watching the rental checks roll in. Here are five things you must consider before renting your home.

Your Objective

If you are saddled with two mortgages, renting your vacant property may prove more lucrative than letting it sit vacant. But, if you’re renting your property for the income alone, there are many financial factors to weigh.

As a landlord, you are responsible for upkeep of your rental property, which may a property management company. Expect to pay about ten percent of the monthly rent you charge for such services, and remember that in most cases, you are responsible for the costs of repair and maintenance—even if the tenant caused the issue.

Remember that you’ll spend about two percent of the purchase price of your home each year on basic home maintenance. Consider the cost of your monthly mortgage, remembering that expenses associated with renting, mortgage interest and depreciation, are all tax deductible. (However, the IRS considers renting a home a “passive activity,” meaning that losses are limited to $25,000 a year). Decide whether you are willing to “sweeten the deal” by paying any utilities, and consider that you will incur living expenses for your own housing.  Taking all those factors into consideration, establish a base figure that you would need to charge for rent, just to break even.

With that figure in mind, Joanne Cleaver of ForSaleByOwner.com recommends getting a full appraisal by a professional, and requesting that comparable rents be included, not just comparable market values. Third-party verification of the market rents will enable you to hold firm in negotiations, and will prove invaluable when resetting your property insurance to cover the rental.

Your Future Plans

Tax laws around capital gains vary based on amount of time you live in a property before it is sold. Further, rental properties that are sold at a profit may be subject to repayment of any depreciation deductions that you claimed on the property prior to the sale. If you plan to sell the property in the next few years, make sure that you are aware of the tax implications and time limits.

Keep in mind that renting is generally not a wildly profitable business if you’re only in it for the short-term, and that rental income is taxable and must be reported on a 1099-MISC tax form. However, the long-term financial benefits  of renting are the tax breaks, and opportunity to build home equity using someone else’s money.

Tenant Laws in Your State

Chantay Bridges of Clear Choice Realty & Associates stresses the importance of understanding tenant laws in your state, especially if you live in one where laws skew in favor of the tenant. She explains that many states deem it illegal to evict a tenant without proper documentation and up to 90 days of notice, even if they have caused damage or failed to pay rent. Further, establish legally binding contractual boundaries to protect yourself against any contents that the renter may take with them after moving, like wall coverings or small appliances. (This becomes especially important if you sell the home, and the buyer purchases it on the condition that all contents are included).

Bridges also points out that some landlord/tenant laws state that once a person has lived in a property for a 12 month period or have utilities turned on in their name, they have established tenancy; it can one to two years to remove their name from the property. Further, if they find ways to illegally secure utilities like cable, you may be liable for damages. Always conduct a credit and criminal background check on prospective tenants, and require a refundable security deposit that will cover damages the tenant may cause.

Your Legal Landlord Responsibilites.

Michael Koshet, CEO of Help Me Rent magazine, also advises landlords to understand what services they are legally obligated to provide, to maximize return on investment.  While laws vary by state, Koshet says that landlords are generally not obligated to perform cosmetic repairs that do not impact safe living conditions. Of course, the happier your tenant is, the longer they’re likely to stick around, but knowing your rights can minimize unnecessary expenses. If a demanding tenant seeks new carpeting, landscaping or window coverings, you may not be legally required to comply, as long the current condition does not pose a hazard. Further, tenants are required to replace certain damages they cause, like a broken window.

Worst-Case Scenarios

Consider worst-case scenarios before deciding to rent. How long can you afford for the unit to sit empty in the case that you can’t find a renter? How much money can you afford to dedicate to court costs or litigation if a renter doesn’t pay, causes damage that requires legal proceedings, or fails to pay for several months? Renting a property can be a wise home investment while waiting out the home market, but it’s also a game of chance. Understand the risks and rewards associated with renting, and then decided if you’re ready to take on the role of landlord.

Stephanie Taylor Christensen is a former financial services marketer based in Columbus, OH. The founder of Wellness On Less, she also writes on small business, consumer interest, wellness, career and personal finance topics.

Should you pay off your mortgage as quickly as possible? Or are you better off paying it over 30 years and investing any extra cash? A lot of misinformation can be found among the financial “experts,” and one of the favorite is this argument:

Keep your mortgage in place to maximize your tax deduction.

Why is this bad advice? The math simply does not add up. For example, a family paying a federal rate of 28% plus a state rate of 5% is liable for 33% of taxable income. So if your total mortgage interest is $12,000 this year, it comes out like this:

$12,000 interest – 33% tax liability of $3,960 =  $8,040 net after-tax interest

In other words, even after tax benefits, you are still paying 67% of the gross interest cost after allowing for the tax deduction. If you could eliminate the entire mortgage debt, you would save the after-tax interest of $8,040 per year.

A second myth is that you are better off investing your cash elsewhere. The argument is:

Invest any extra cash to increase your investment income.

There is also a problem with this argument. That extra investment income will be taxable, so even if you could match your 5% mortgage with 5% interest income, is the risk comparable? Your home is insured, you maintain it, and it provides many benefits beyond just being an investment. If you make 5% by investing elsewhere, what level of risk exposure do you accept? Chances are that the risk you take to earn 5% is not as valuable as the investment risk of paying 5% on your home mortgage.

Is that 5% cost really such a big deal? Yes. If you are paying 5% on a 30-year fixed rate mortgage starting at $100,000, your total interest cost is $93,259, so that your $100,000 mortgage costs nearly double to get paid off.

Some additional startling facts about your mortgage (all based on a $100,000, 30-year fixed-rate mortgage):

- At the end of five years, you have only paid off about 8% of your mortgage. Considering that most people move to a new home after five years, that means your 60 months of payments were almost entirely interest.

- At the end of 20 years, your mortgage is only one-half paid off. The other half is repaid over the last 10 years.

- Adding $50 extra to your payment each month takes five years off the repayment term, reducing it to 25 years and saving about $18,000 in interest.

Mortgage interest is calculated based on the remaining balance each month, so the higher your balance, the more of your payment goes to interest. This is why paying off as much as you can early on — a process called mortgage acceleration — is a valuable investment. If your mortgage is fixed at 5%, every dollar you prepay today yields you a reduced interest of 5% at a compounded rate. That is going to be a much smarter and safer investment than you can make anywhere else.

Michael C. Thomsett is author of over 60 books, including Annual Reports 101 (Amacom Books Press), Trading with Candlesticks (FT Press) and the just released new book, Getting Started in Stock Investing and Trading (John Wiley and Sons). He lives in Nashville, Tennessee and writes full time.

This post was provided by Minyanville.com.

Photo credit: woodleywonderworks

Buying a home is complicated enough without wondering if your mortgage rate is going to change at some point in the future and with it, your monthly payment.

But what if risking that change was really worth your while?

That would sound crazy to anyone who’s experienced or even simply followed the recent mortgage crisis, with people’s mortgage payments jumping two- or three-fold thanks to the skyrocketing rates on their exotic mortgage loans.

But lately, traditional adjustable rate mortgages – those that carry a fixed rate for an initial one, three, five or seven years and whose rate resets annually thereafter – have been making a comeback.

It’s not that homeowners and potential buyers have forgotten the recent mortgage crisis – there are still more than enough foreclosures in many neighborhoods serving as a painful reminder – but the recent interest rate environment has made ARMs appealing once again.

ARM rates, in fact, have historically been significantly lower than traditional 30-year fixed mortgage rates. But in the past few years, that gap was nearly closed or even in some cases reversed (with ARM rates higher than 30-year fixed rates) and for that period of time, most consumers simply went with what made most financial sense, as well as gave them a feeling of security in those very insecure economic times: a mortgage loan whose rate was fixed for 30 years.

Today, however, you could say that things are back to normal. According to Bankrate.com, the average 30-year fixed mortgage loan was at 4.78% (as of April 25, 2011), while that of a 5/1 ARM was 3.32%. For someone who plans to stay in their house for only five years or less, a 5/1 ARM would bring substantial monthly savings.

Hence the recent surge of popularity.

According to a Federal Reserve Bank of New York Study, ARMs comprised up to 70% of all mortgages in 1995. By 2010, that number was down to 10%. But ARMs are making a comeback in 2011. Financial giant Bank of America says it has doubled its ARM business. The Mortgage Bankers Association has also reported an uptick in ARM activity so far in 2011.

Usually, ARMs work best for homeowners who plan on moving within 10 years, or who at least plan on refinancing before their ARM rate adjusts. Homebuyers who use jumbo loans are drawn to ARMs, too, as they keep monthly payments lower for the first few years of the mortgage loan.

ARMs Explained

Adjustable rate mortgages boil down a secure, fixed interest rate from 30 years to a much shorter time frame – usually one to seven years. During that time frame, ARM interest rates are significantly lower than a rate tied to a 30-year fixed-mortgage.

But consumer beware – after that time period expires, the mortgage rate is “reset” – meaning it can rise two or three percentage points, depending on the mortgage market. To protect themselves against a higher reset, homeowners who have ARMs refinance into a fixed rate mortgage just before the ARM rate expires (or they sell the house).

How does an ARM stack up against a fixed mortgage in dollars?

Quicken Loans offers a good example: A $200,000 five-year ARM with a rate of 3.99%, with 1.75 points applied, will produce a $953 monthly payment, while a 30-year fixed mortgage at 4.99%, with the same 1.75 points applied, generates a $1,073 monthly payment.

Over the five-year period, you’d save a total of $7,200 – or $120 per month – by choosing the ARM option over its fixed-rate cousin.

How to Get the Best Deals

The key to finding the best ARM deals today? Simply follow the same rule you heard when you were 15 years old: do your homework. Arm yourself with fresh data on prevailing interest rates and trends (check mortgage rate sites like BankingmyWay.com or Bankrate.com every week, if not every day), and find trustworthy brokers and lenders to help with your final decision.

Kick your ARM campaign into higher gear with these ideas:

– Evaluate your housing wants and needs. Because interest rates are lower for adjustable rate loans, it’s a bit easier to borrow more, although not as easy as it was before the credit crunch. The first rule of home financing is that you don’t want to overextend yourself, but this added bit of leverage can be important to first-time homebuyers who are already stretching the limits of what they can afford.

– Talk with a reputable mortgage broker. Comparing different lenders’ standard variable rates is a good way to determine who’s offering the best rates overall.  (Make sure whoever you talk with isn’t set on selling you just an adjustable rate loan, but is willing to discuss and advise on all mortgage options).  Don’t be afraid to ask questions, and get full disclosure on lender’s fees (credit check, appraisal, inspection, recording fees, and other processing costs) as well as any prepayment penalties that might apply to your loan.

-  Pace yourself. In general, adjustable rate loans work well with buyers who need to keep their monthly payments low for the first one to five years, whether they’re paying off student loans, or plan to tackle major renovations and want to keep some cash in the bank. Adjustable rates are also a good bet for those who expect to move within the next few years. These loans usually come with a low introductory rate for a given period, after which time your interest rates (and therefore payments) can jump significantly.  So just be sure to take this into account.

Plan for a “Worst Case” Scenario

While lenders have certainly gone back to the more conservative traditional ARMs in recent years (forget about Options ARMs and the no money down, no-doc loans — many called them “liar loans” of the mid-2000s), that doesn’t mean that ARMs are bullet-proof. Before you take the plunge, simply consider what could happen if interest rates went up to their maximum allowed under contract. Your potential lender should be able to provide you that information. Ask the lender: What’s the most you would have to pay on that loan? Then ask yourself, Is that something you’d be able to afford?

Is It Time to Consider an Adjustable Rate Mortgage? was provided by CreditSesame.com, a free tool that helps people manage their credit, mortgage and debt.

There are a few certainties in life: death, taxes, and FICO not disclosing how many “points” certain events can cost your FICO scores. But, less than two weeks ago, the scoring giant did just that: provide some clarity on how many points you can lose by doing a variety of “bad” things with your mortgage loans.

Here’s what we already knew: delinquencies are bad, severe delinquencies are usually worse, and recent and frequent delinquencies are the worst.

As a result of FICO’s study results, we also now know the following:

For someone with a FICO score of 680…

A 30-day delinquency and a 90-day delinquency have the SAME score impact. Both of these events will turn the 680 into a score somewhere between 600-620.

A short sale (settlement), with a deficiency balance, will have the SAME score impact as a foreclosure. The events will turn a 680 into a score somewhere between 575-595.

A bankruptcy is the worst thing that can happen to your FICO scores. It will turn a 680 into a score somewhere between 530-550.

The amount of time for your score to fully recover back to a 680 is 9 months for a 30-day or 90-day delinquency, but it takes much longer to recover from anything worse. Short sales, settlements, and foreclosures all take three years to fully recover. A bankruptcy will take you five years to recover.

For someone with a FICO score of 780…

A 30-day delinquency and a 90-day delinquency have a different score impact. The 30-day late turns the 780 into a score somewhere between 670-690. A 90-day delinquency will turn the 780 into a 650-670.

A short sale (settlement), with a deficiency balance, will again have the SAME score impact as a foreclosure. The events will turn a 780 into a score somewhere between 620-640.

The amount of time for your score to fully recover back to a 780 is much longer than the amount of time for your 680 to recover. It takes three years to recover from a 30-day delinquency and seven years to recover from a 90-day delinquency, a short sale, or a foreclosure. It will take you seven to 10 years to recover from a bankruptcy.

What I found to be especially important is the fact that a payment that’s even just one cycle past due (a 30-day delinquency) has a profound negative impact on your scores.  This is especially problematic for consumers who have chosen to be delinquent on their mortgages in an attempt to get help under the Making Home Affordable plans.

“Consumers may be told in some cases that they have to go late before they can get any help under one of the HAMP (Home Affordable Modification Program) programs,” says Joanne Gaskin, Director of FICO’s Global Scoring Unit.  “It’s important for them to understand that even a 30-day late can be very damaging.”

This study also seems to finally put to bed the ongoing myth that short sales are better for your credit scores than foreclosures. “There seems to be a perceived view that a short sale is going to be significantly different to your FICO score than a foreclosure”, Gaskin says. “While there’s a minor difference, it’s not significant.”

(The above charts were copied from FICO’s Banking Analytics Blog.)

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger forMint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow him on Twitter here.

Photo credit: taberandrew