Better credit can save cash
By Marcie Geffner – LendingTree.com

Want to save an easy $105 this year? If you’re an average consumer, that’s how much you could cut your annual finance charges if you improved your credit score by just 30 points, according to a new survey released by the Consumer Federation of America (CFA) and Washington Mutual Bank.

Boosting your credit score by a mere 30 out of several hundred points might be much easier than you’d think it would be. According to the survey, these five strategies may be among your easiest opportunities for improvement:

● Pay all of your bills on time and in full every month.
● Don’t max out, or get close to maxing out, the limits on your credit cards or revolving credit accounts.
● Pay off your debts, rather than transferring your balances from one account to another.
● Don’t open multiple new credit accounts all at one time or in rapid succession.
● Check your credit report annually and take action to correct any mistakes that might have been made.

The survey also found that in some ways consumers have become better-informed about credit scores in recent years. But in other ways, consumers still harbor misconceptions and misunderstandings.

With that in mind, here are a few important points to remember:

● Your credit score is based on your history of using credit and paying your debts. Your personal characteristics such as your income, age, marital status, home state, education or ethnicity have no effect on your credit history or credit score.

● You can improve your credit score by using credit responsibly. For example, your credit score can increase if you pay off a large credit-card balance, but decrease if you make a late payment on a credit-card or max out your limit on a credit-card.

● You’re legally entitled to a free look at your credit report (but not your credit score) once each year. If you also want to find out your score, you’ll have to pay a small fee. An exception occurs if you’ve been turned down for a mortgage loan or credit-card. In that case, you’re entitled to a free credit score as well.

The bottom line is that the more you know about credit, the better prepared you’ll be to use credit wisely–and that can be easier on your wallet.

Housing bill to aid homeowners
By Marcie Geffner – LendingTree.com

The federal government is poised to enact a major housing bill that aims to assist first-time home buyers, homeowners who need to refinance their mortgage and an assortment of housing-related companies.

The House of Representatives has already passed the 694-page bill, which is now being heard in the Senate. President Bush has said he will sign the bill, which could be on his desk within a few days.

The details won’t be official until the ink dries on the President’s signature, but here’s a summary of several key points:

FHA refinancing program 
A new FHA loan program would be established to help struggling homeowners refinance their mortgage with a new 30-year, fixed-rate FHA loan.

To qualify, the homeowner must:

• have an existing mortgage originated before Jan. 1, 2008,
• be unable to afford the payments on that mortgage,
• have a mortgage debt-to-income ratio of at least 31 percent (or potentially higher),
• live in the home and
• meet a number of other requirements.

The homeowner’s current lender would have to agree to reduce the amount owed on the existing mortgage to no more than 90 percent of the home’s current market value.

Borrowers who want to apply for this program should first contact their current mortgage servicer and then an FHA-approved lender. Borrowers will have to pay a monthly premium for FHA mortgage insurance, be reasonably able to afford the payments on the new mortgage and share a portion of future appreciation in the value of the home with the FHA.

First-time home buyer tax credit
Home buyers who purchased a home on or after April 9, 2008, or before July 1, 2009, and had not owned a home during the previous three years would be eligible for a federal income tax credit of up to $7,500. The credit would have to be repaid over a 15-year-period and would be phased out for taxpayers whose adjusted gross income exceeds $75,000 (single filers) or $150,000 (joint tax return).

Higher loan limits 
The maximum loan limit for FHA-backed loans would be increased to 115 percent of the local-area median home price. The maximum loan limit for loans that could be purchased by Fannie Mae and Freddie Mac would be set permanently at $625,500. The Department of Veterans Affairs loan limit also would be increased.

New Fannie Mae, Freddie Mac regulator 
A new federal regulator would be created to oversee Fannie Mae and Freddie Mac. The government’s thinking is that a new tougher regulator would enhance Wall Street’s confidence in the two government-sponsored mortgage companies. That could indirectly result in lower mortgage interest rates, which would be an added benefit for home-loan borrowers.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

Rising rates may make ARMs riskier
Refinancing could protect you from higher monthly mortgage payments.

If you have an adjustable-rate mortgage (ARM) and are worried about the prospect of higher interest rates later this year, you might want to consider refinancing to take advantage of today’s still-attractive interest rates on fixed-rate mortgages.

If your ARM has already been reset or is scheduled to reset soon and your new monthly payment won’t be affordable, the decision to refinance your ARM may be simple. Yet the decision still should be made carefully since your mortgage is most likely your largest monthly expense.

In addition to the outlook for interest rates, other factors you should consider include:

• Your tolerance for risk.
• The interest rate caps on your current ARM.
• How long you intend to own your home.

If you refinanced your ARM today with a fixed-rate mortgage, you’d be protected from the possibility of higher interest rates and monthly payments in the future. That’s because a fixed rate means exactly that: The rate never changes over the entire term of the loan, be it 15, 30 or even 40 years. A 30-year fixed-rate mortgage originated today at 6.5 percent would still have that same 6.5 percent interest rate in the year 2038, when it would be paid in full.

Remember that refinancing usually extends the term of the loan, which results in a longer time–and more payments–until the loan is paid off.

Interest rates are already higher today than they were a year ago on 30-year and 15-year fixed-rate mortgages and most ARMs. The good news for borrowers, however, is that loan fees and points are lower, on average, than they were a year ago on some loan products.

Higher interest rates could be on the horizon if inflation, which refers to higher prices, forces the Federal Reserve to hike bank interest rates. The Fed doesn’t directly set interest rates on mortgages, auto loans or credit-cards, but its actions indirectly affect the general direction of rates that consumers pay.

Before you decide to refinance your loan, review your current ARM with your loan officer. Find out how much your interest rate and payment could increase and when each adjustment will occur. How comfortable–or uncomfortable–would you be if the worst-case scenario for your ARM came true? If that scenario makes you queasy, refinancing could be a smart way to protect yourself from that risk.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.