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Special section 7 Bankrate experts with 7 top tips for '07

Mortgages and real estate changed dramatically in '06. Have you learned the lessons well enough to apply them in '07?


7 smart mortgage moves for '07

That's right. In many cases, when you make the minimum payment on an option ARM, you owe more on your house the next month. "You don't want to end up owing more than what you started out with," says Jim Bradley, owner of American Residential Lending Corp., a mortgage brokerage in Atlanta.

4. When you get a mortgage, shop around. If you're smart, you'll start your mortgage search by looking at's mortgage rate tables. Don't stop there, says Steve Habetz, owner of Threshold Mortgage in Westport, Conn. "First, shop the Internet for rates, but look for a local lender to apply for your loan," he says. If you have questions or problems, either before or after getting the loan, "you can get in your car and meet someone to talk to."

And for Pete's sake, don't just talk to the lender with a desk inside the office of your real estate agent or builder. Sure, talk to that lender just to mollify everyone, but you won't get the best possible deal if you don't shop around.

It's illegal for a builder to require you to use the builder's in-house lender. If the builder tries to pull this trick on you, document everything and report it to the state attorney general.

5. Make an extra payment. If you make 13 mortgage payments every year, you will pay off a 30-year, fixed-rate mortgage in less than 25 years. Bankrate's mortgage calculator lets you find out how extra payments affect your payoff date, whether you make them monthly, annually or just once.

6. Think about getting mortgage insurance instead of a piggyback loan. If you buy a house in 2007, and you make a down payment of less than 20 percent, you'll either have to buy mortgage insurance or get a piggyback loan -- a primary mortgage for 80 percent of the home's value and a second mortgage for the rest that you owe.

For a long time, piggyback loans were almost always a better deal because the interest on both loans was tax-deductible and mortgage insurance wasn't deductible. But that changed on the last night of the 109th Congress, when both houses passed a tax law. For loans originated in 2007, the mortgage insurance premiums will be deductible from federal income tax.

This is an important change because it means that mortgage insurance will be cheaper in the long run for a lot of home buyers, especially those who live in their homes for five or more years and keep the same mortgage.

7. Be skeptical. "If it sounds too good to be true, it probably is," Habetz says. He sees plenty of customers who got mortgages (usually option ARMs) at 11/4 percent from other lenders and who were surprised when the rates started rising abruptly just a year later. "Now they find out there is no such thing as one-and-a-quarter percent, they're facing huge prepayment penalties to get out of these loans or they're facing a rate that's well above the market at this point," Habetz says.

But you wouldn't make the mistake of getting a loan for hundreds of thousands of dollars without fully understanding it and reading all the paperwork, right?

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-- Posted: Dec. 20, 2006
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