I Bought a House, Now What?

Congratulations! You now own a piece of the American Dream. Here are a few financial tips for being a homeowner:

Use Your Home to Build Good Credit

Make your mortgage payments on time every month, because late payments can stay on your credit report for up to seven years. If you're having financial difficulties, contact your mortgage lender at once. The lender may agree to modify your mortgage or allow a forbearance agreement, which is a repayment plan that lets you catch up on missed payments and avoid foreclosure. The lender also may point you to government-sponsored programs to assist you in keeping your home.

Maintain Your Home

Take care of your investment. Handle minor repairs before they become major expenses, make sure you have adequate homeowners insurance and save money in an emergency fund to take care of unexpected expenses, such as a new furnace or roof repair.

Be Careful About Borrowing Against the Equity in Your Home

Home equity loans are very popular, but remember, the loan is secured by your property. If you fail to keep up payments, you could lose your home. Financial planners recommend that you carefully consider the following cautions:

• If interest rates rise significantly, it could cost you more to finance your outstanding loan.
• If housing prices slump, you could end up owing more than the equity left in the home.

You could be tempted to borrow against your home to pay off your credit cards, only to turn around and rack up new credit card debt-this time, with your home at risk.

Know When, and if, to Refinance

Refinancing your mortgage to a loan with a lower interest rate can be advantageous in some situations, but there are costs involved, so it's important to run the numbers with the help of a financial planner. Generally, the longer you plan to live in the home after refinancing, the more time you have to recoup refinancing costs and begin to save real money. Also consider any prepayment penalties on your existing mortgage, the length of the new loan and whether that will mean that you will actually pay more in total interest even with a lower interest rate. In addition, evaluate what a lower interest rate will mean for your tax deduction.

Prepay Your Mortgage When It Makes Sense

Making an extra principal payment every so often or paying extra principal each month-even as little as $25 or $50-can save thousands of dollars in interest charges, and owning a home free and clear provides a great feeling of security. On the other hand, you may actually come out ahead financially by putting that extra money into a high-earning retirement account. Also, prepaying is less beneficial if you have a low interest rate on the mortgage and are in a higher tax bracket, because you'll lose the advantage of tax deductions on your interest payments.