With interest rates on the rise, you may be asking yourself what you should do before your mortgage payments rise higher than you can afford you pay.  Your home and credit are on the line and time is of the essence.  What do you do?

It’s possible to take a “cash-out” refinancing loan.  You can call your lender and ask to have your variable rate credit line converted to a fixed rate, fixed term mortgage; you may be surprised how easily the yes answer comes.  You can take out a simpler refinancing loan that again locks your interest rate and eliminates the credit line.  You can sell the house and downsize.  Or you can take a second and third job to pay the note… just kidding.

Banks want your business, and will attempt to keep you a happy customer who’s not going to be returning a home you can no longer afford the payments on.  So give it a shot, check with your banking institution or lender what your options are for checking the rapid rise in interest rates on your home.  The important thing to note is that these lenders want and need your business, especially with the housing markets drying up so quickly.  You’ll find them to be especially accommodating if you simply ask.  A paying customer is better than a bankrupt one.

Individuals who have taken out a home equity line can often find themselves in a financial bind.  Their variable rate can rise and cause their monthly payments to rise as well.  These rising payments and interest rates are causing for financial pain to many homeowners.  

Many homeowners have chosen to cut back and face the rising payments, but fear that the rising payments will only continue to grow.  Many decide that they will refinance their first mortgage and pull out enough money to pay off their home equity loan.  This is known as “cash-out” refinancing.  Many people use this method to pay off their variable rate credit lines.  Other homeowners are taking a chance and calling their lenders.  They are asking for something they never knew was possible-converting their variable rate to a fixed rate.  Lenders are not advertising this option but if you confront them with the idea, they are more than happy to help you out.  They are able to do this quickly with no appraisals, no credit checks, no title or closing costs and no fees.  

Some banks are also able to change your line of credit into a multiple tax-deductible financial planning choices.  You can take different lines of credit and convert them into fixed-rate or variable-rates.  Different loan amounts can be converted to fixed-rates for a specific period of time to help you pay for individual projects.  For example, you can take a $50,000 variable-rate credit line and convert $30,000 of it into a fixed-rate loan for five years to pay for education. 

J.P. Morgan Chase and Citibank home equity groups allow customers to divide their credit lines into several different groups with different terms, rates and at no additional costs. 

While some people advocate doing renovations to increase the value of your home, you need to know that few renovations and remodeling projects will give you a 100% or more return on your investment.  While remodeling and making renovations can certainly help the sale on your home, they won’t necessarily bring in enough money to cover your investment. 

So, when should you do renovations on your home?  The best answer is ”when you want to make the changes for you and your comfort in the home.”  Even a kitchen remodel, which is often the most desired type of remodel and the best way to increase the selling points of your home won’t often bring in a 100% return on your investment. 

When you do decide that the time is right for you to undertake renovations or remodeling, keep the following in mind:

Don’t worry about being picky if you need a contractor to help you.  You will most likely invest a lot of time, money and disruption to your life when you decide to renovate or remodel and you need to fully trust your contractor to make sure the job is well done.  Ask for references and call them.  Ask to see examples of similar work.  Keep asking until you’re sure you’ll be comfortable asking this person to work on your home.

You’ll also want to make sure your contractor has current insurance.  Another option that you have is making sure that your personal liability is sufficient to cover any accidents by uninsured people on your property.

Home prices in many areas of the U.S. have skyrocketed.  A lot of homeowners are finding themselves sitting on houses that have had an enormous increase in home equity value.  These homes are becoming “piggy banks” for those wanting to use a little of that home equity.  Here are a few hot spots for home equity and where homeowners have seen the prices of their homes fly up:

• Las Vegas
• California
• Southern Florida
• Urban East Coast

A few not so hot spots where the prices of homes have dropped include:

• Southeast
• Midwest
• Southwest

Specific cities that have seen a large drop in home prices include:

• Charleston, West Virginia
• Indianapolis, Indiana
• Austin, Texas

Home improvements are great ways to increase the value of your home.  Increasing the value of your home will help you get a larger home equity loan or line of credit in the long run.  Home improvement projects can easily become larger and more expensive than intended but simple projects can be completed yourself in one or two weekends. 

Start your improvements by making a game plan.  Figure out what you need and what you are going to do.  Also figure out how much of a budget you are willing to give yourself or spend.  Projects that are great for weekends are minor landscaping projects in both the front and backyard and interior painting.  Installing shelves and storage will help you organize your belongings while adding storage space that will make you home more valuable.  Your backyard can benefit greatly from privacy fencing, decks, and other backyard renovations.  If you have a large dogs, sprucing up the backyard and fixing any animal damages will also help to increase the value of your home. 

Saving major renovations for professionals is essential.  Do not try to renovate your kitchen or bathrooms without the help of a contractor.  If you really want to be a part of the job, they may have some small duties that you can help them out with.  Kitchens and bathrooms contain large amounts of plumbing and electrical areas that only a professional should handle.  You don’t want to get started on a large expensive project and have to hire a professional to fix your mess-ups. 

Do-It-Yourself projects will increase your home’s value little by little and they can be worked on little by little, which is all that most people have time for anyway.  You will be excited to see what you can do in one weekend.

A new option in home equity is becoming available, largely with seniors, but not limited only to families who are free and clear of their mortgages: a reverse mortgage.

With the reverse mortgage, owners pull equity out of their homes without having a house payment, with loans that aren’t due until they sell the house or pass on.  Instead, their lenders are paying them.

The benefits follow: the money is tax free, as it is still considered a loan, there is more cash available for vacations or health needs, there aren’t restrictions on how the money is spent, and it can be received in payments or one lump sum.

The caveats are that they usually come with high interest rates and upfront fees.    The loan is still open to be charged mortgage insurance as well as loan origination fees and other closing costs.

The amount available depends on where the borrowers live and how much equity they have in their house.

People are always looking for the best ways to increase the value of their homes whether they are thinking about selling in the near future, are trying to eliminate a mortgage insurance payment or just simply want to improve their home.  If you are one of these people, here are some tips to help you get started:

1. Improve the outside appearance of your home.  It’s called curb appeal.  Do some landscaping, plant shrubs and get rid of any junk in the yard.

2. Spend your money where it counts — on the things you can see.  Especially if you have a limited budget, move the most visible improvements to the top of your priority list.

3. Update the kitchen.  When people are looking for a home to purchase, the kitchen can often be a deal maker or a deal breaker.  You can make an outdated kitchen look great with a few simple changes — paint the walls and cabinets, replace old faucets and sinks and get new flooring.

4. Remove the clutter.  Get rid of all the little things cluttering up your house.  REmmove stuff that could be causing musty or otherwise unpleasant odors and take some time to give everything left a thorough cleaning.

Whatever you decide to do, just don’t take it too far.  You don’t want your house to be the most expensive in the neighborhood because you’ll likely not get as big of a return on your investment.

A Home Equity Line of Credit (HELOC) is a revolving line of credit where your home serves as the collateral.  Generally, banks will allow up to 75% of the home’s value minus what you currently own on your home as a credit limit.  Of course, the banks will also look at your debt-to-income ratio to determine whether or not you qualify for a loan of that amount.

Generally what happens is that you’ll be allowed to borrow up to the limit of your credit approval throughout the life of the loan.  Often times, however, banks will have a minimum amount that you can spend at any one time to prevent you from using it for everday expenses — most people reserve this line of credit for major expenses such as education and remodeling.

One thing to be aware of, however, is that the interest on HELOC loans are often variable rate instead of fixed-rate. You’ll want to make sure there is a cap on the amount of interest you pay over the course of the loan to prevent it from getting out of hand.

California has enacted a new law that will make obtaining a reverse mortgage in California a bit easier.  Governor Arnold Swarzenegger has signed the law that will provide protection to California homeowner’s who are looking to obtain a reverse mortgage.

California homeowners will now receive independent counseling advice from certified counseling agencies.  These agencies will explain the pros and cons of obtaining a reverse mortgage and will not be a part of the deal.  These counselors will be from outside agencies that do not deal with the bank or lender.

All documents will be translated into the language of the borrower.  With so many languages being spoken in California, this will help insure that the process is completely understood by the borrower. 

Lenders will now have to stop forcing borrowers to obtain annuities as a part of the reverse mortgage deal.

This new law and these new changes will insure that homeowners know exactly what they are getting into when obtaining a reverse mortgage.  The new law also insures that lenders will not be able to take advantage of borrowers or add additional conditions to the loan agreement.

You’re thinking about working on the house and taking out a home equity loan to pay for it all.  But you’re worried about getting your moneys worth out of the work.  What if you’re making a bad investment?  Here are a few things to consider:

Will it make your living situation more comfortable?  If you’re scrambling for space, ran out of enough cabinets, or try to beat the rush hour for the bathroom, it’s probably a good idea to take the plunge.

Will you be living there for a while?  Home equity loans won’t pay off if you plan to move within the next two years.  Decide how committed you are to the house you’re in to determine if it’s worth the costs.

What are you upgrading?  Typically, bathrooms and kitchens have the best return for their investment when you’re updating them.  Thermal windows and new roofs are nice too and likely to help, but no one’s going to care if you put in new carpet.  If making your money back should you sell the house matter to you, make sure your equity is going towards a project with an expected return.

With these three questions in mind, you should have a solid start to making your decision.