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Mortgage Rates Are Rising, But It’s Not Too Late to Cash In

By now you’ve heard the news: Mortgage rates are on the rise. By the end of June, the average 30-year mortgage rate was reported to be above 4 percent.

The news has left many prospective homebuyers and refinancers worried that they’re too late. “Everyone has been waiting for the bottom and sitting on the sidelines,” said Steven Alexander. “But no one knows how far the bottom is until we have passed it.”

Alexander, who is president of Private Mortgage Services in Atlanta and has 25 years’ experience, said all isn’t lost.

“Rates don’t go up vertically and come down vertically. In the coming weeks and months, there will be dips back down,” he said. At the same time, catching a dip need not be a goal. “You are in a historically low interest rate environment since the 1920s. You may not get the 50-year low, but you can get the 47-year low.”

Bottom line: There still is time to buy a home or refinance a mortgage at fairly low rates, and buyers can take comfort in knowing that most property values have nowhere to go but up. Here are some things to consider before making a mortgage move:

∎ Have a steady source of income. “You need to feel comfortable that you have a job that is going to continue,” Alexander said. But also know that to refinance your home, you no longer need to have two years of steady employment, unless you are self-employed.

∎ Don’t let the past stand in your way. If you tried to refinance and were denied, try again, he said. Now that many foreclosures and short sales have filtered through the system, homes that didn’t appraise well six months ago may have a different result now, giving you the equity needed to refinance.

∎ Get the right mortgage for you. A 10-year fixed-rate mortgage is great if you can manage it, but overcommitting to an aggressive payoff strategy will hurt your cash flow. And as the saying goes, you can’t eat bricks.

∎ Run the numbers. Josh Moffitt, founder and president of Atlanta-based Silverton Mortgage Specialists, said people are often too quick to refinance. If you’re only a few years into a long-term fixed mortgage, you may or may not save by refinancing. A break-even calculation can help: Take the number of months left on the loan times the payment compared to the number of months on the new loan times that payment. Consider how you might use any savings to improve your financial situation, such as paying off high-interest loans or investing in home improvements to increase the value of your home.

Once you have a new mortgage or have refinanced your existing mortgage, keep these tips in mind:

∎ Pay off or reduce non-tax deductible debt before mortgage debt. Mortgage interest, Alexander said, still is tax-deductible. Getting rid of it entirely may not be your smartest financial move. Pay off higher interest debts first if you can and put a freeze on any additional debt until you have it under control.

∎ Prioritize investments. Contributing to your 401(k) or IRA, for example, is as important as trying to pay off your mortgage early. Don’t shortchange your future by focusing solely on getting rid of your mortgage or, worse, by using retirement funds for a payoff.

∎ Make extra payments when possible. Once you have a mortgage, reduce your interest payments by making one extra payment on Dec. 31 or Jan. 1. You’ll save on interest and could pay off the mortgage in less than 21 years.