All about mortgages

GregMcBride: In this market environment, I would caution against biting off more than you can chew. If you only plan to live in a home for 2-3 years and can only afford an interest-only loan, I'd think twice. That is a lot of risk over a short period of time, particularly for first-time buyers that don't have the cushion of home equity to protect them.

GregMcBride: Now that everyone from coast to coast is eligible for a free copy of each credit report from the 3 major agencies each year, first time buyers hsould take advantage of this. Get copies of your credit reports before you start house shopping and applying with a lender. You'll want adequate time to get any errors fixed. Any errors can drag your credit score lower and cost you thousands each year in interest.

GregMcBride: There is no particular credit score you should have, but you clearly want it to be as high as possible. Why? Higher credit scores qualify for lower rates and a credit score below say, 620, could pay a rate that is one or more percentage points higher than the rate paid by someone with a good credit score.

TJM: Q: Hi - We bought our house two years ago with 5% down so have to pay PMI. Given the increase in property values I've been looking in to having our house reappraised in order to get out of PMI and saving some $$. However, the bank says we must have at least

GregMcBride: The last part of your question was cut off, but you must have the loan for a certain period of time, known as a seasoning requirement, before you can drop PMI. This seasoning requirement varies, but 2 years is a very common timeframe. once you've reached that point, contact your lender about getting PMI removed with a new appraisal. It is important you do this through the lender so that you don't pay for an appraisal unnecessarily.

TJM: Q: Hi Greg - here's the rest of my message - the bank says we must have at least 25% equity. I had thought I understood that the Homeowners Protection Act set the removal of PMI at 20% equity. Thanks again!

GregMcBride: That's a new one to me. If you get an appraisal that shows the loan balance is 80% or less, then the lender should remove the PMI. The Protection Act states that once you pay the balance down to 78% they must remove it, but you can ask once it hits 80%. I don't know where they're getting 75%.

first_time_homebuyer: Q: HI Greg, I recently bought my first home and took out 2 interest only loans. I am nervous about these interest only loans. We have completely remodeled the inside of the home. When can we refinance and is that a good idea?

GregMcBride: The bigger question is whether you can afford the payments if you refinance. I do think it is a very good idea to get away from adjustable rates and interest only loans right now because fixed rates are so low. But you must be in a position to afford the higher monthly payment that comes with a loan requiring both principal and interest each month.

dagodfather: Q: Hi Greg, the mortgage broker I retained got me a pretty bad mortgage. I want to refinance for a fixed 30 year loan but I have to wait at least three more months before I'm eligible. How can I find a good mortgage broker? Will rates continue to skyrocket?

GregMcBride: I would recommend using the Bankrate.com search engine to shop for lenders and brokers with competitive rates. You say "skyrocket" with regard to interest rates, but it must be said that only some loan rates have increased - mostly adjustable rate loans. Fixed rate loans are actually lower now than when the Federal reserve started raising interest rates. Fixed rates are very attractive now so I think you are wise to be considering a change now.

calvin: Q: can first time buyer obtain a 40 yr fixed mortage to keep his monthly payments down?and what is the advantage or disadvantage

gw: Q: Been in my townhouse now for 2 years with a 5/1 ARM but also have a 54K equity line of credit that I want to roll into a 7/1 or 10/1 mortgage. My house equity has increased about 60k is this fairly easy to do? Can I avoid points doing this

GregMcBride: Yes you can do this, but if the total amount of the new loan is that close to the value of the home (this is called a "high loan to value") then you may find yourself paying a higher rate as a result. But I do recommend considering it and you should be able to find plenty of quotes with zero points.

Mike: Q: Hello, some say its good to have a mortgage still ,while applying for children college tuitions. I'd have mine paid off in 9 years while the kids are in high school. Any advice or truth t that statement?

GregMcBride: While owning your home may involve a higher parental contribution for college tuition, it doesn't justify keeping a mortgage. I'd recommend an accountant to answer that more fully for your situation.

gub: Q: My bank wants $300 to appraise my house to remove the PMI. I'm a first time buyer and have owned the house for three years.

GregMcBride: That is standard. You must pay for the appraisal and it typically costs between $300 - $350.

stagno: Q: I currently have a 30-year fixed at 5.75%. I'm paying $200/month PMI. I don't yet have 20% Equity. Do I have any options to get rid of PMI?

GregMcBride: I'm not sure you want to incur the costs of refinancing a loan just to eliminate the PMI. Your rate is on par with the going rate for a 30-year fixed, so you would incur a lot of costs for no interest savings. It would take many months of PMI payments to earn back the costs of a refinance. Depending on how long you've been in the home and how much it has appreciated, consider sitting tight until you can get it appraised for removal as an earlier question talked about.

x: Q: The number of lenders available on the internet and print seems overwhelming. How can I narrow down the field to refinance my jumbo loan?

GregMcBride: I recommend using the search engine at Bankrate.com. This will give you a list of quotes for the specific loan you're looking at. You can then choose who you want to apply with based upon the rate, fees, APR, and how responsive they are to any questions you have. Yes, there are many lenders and brokers in the marketplace but choice is a good thing for consumers. It means better borrowing terms. Good luck.

Vinny_S: Q: What is better in today market home equity loan or refining with a 7 year ARM?

GregMcBride: You're talking about a first mortgage (the 7-year ARM) and a second mortgage (the home equity loan), so it is a little bit like comparing apples and oranges. A fixed rate home equity loan will carry a higher rate than the 7-year ARM because it is in a second lien position. A home equity line of credit has a variable rate and is very sensitive to interest rate increases by the Federal Reserve.

gw: Q: Same question as BostonLou...I have a 80% 5/1 ARM and a 20% equity line of credit (to avoid PMI) what is the best way to get rid of the equity line of credit...seems to be going up 1% every 3 months

GregMcBride: You bet it is going up. Unfortunately, the Federal Reserve may keep that streak going. Consider refinancing the line of credit into a fixed rate home equity loan. If you could profitably refinance your first mortgage you could combine the line of credit with the first, but you may end up paying PMI again depending on the current value of your home.

csr: Q: When you're just getting started house-hunting, what should your first step be in regards to mortgages?

GregMcBride: Get copies of each of your credit reports, then figure out how much house you can afford. We have a calculator at Bankrate.com that will help you figure this out. Once you know how much you'll need, then compare among lenders and get pre-approved for the loan. This will give you an advantage when house-hunting because the seller knows the financing won't likely be an issue that torpedoes the sale.

BostonLou: Q: it seemed like the 30 yr would reset and we would be locked into higher payments for a lot longer. does it make sense to refi the home equity?

GregMcBride: Consider refinancing the home equity line into a fixed rate home equity loan and leave your current first mortgage alone. Your rate of 5.625% is probably not something you'll be able to improve upon.

Question: Q: Greg, there are a few local banks offering fixed rates on equity lines for 12+ months that may be something to look at for those with adjusting equity lines. anyone with an equity line over prime should look to refinance that portion of their mortgage.

GregMcBride: One of the new wrinkles among home equity products are the "hybrid" home equities that offer a fixed rate for a period of time before becoming adjustable. Just as with the hybrid mortgages, this can be advantageous to borrowers, particularly now when interest rates are rising so steadily but no one knows the longer term path of rates.

GregMcBride: Thank you for all of the great questions. I enjoyed the opportunity to answer your questions. Have a great day.