But because lenders are taking a risk by allowing the borrower to only pay the interest on the loan, mortgage rates are generally higher with these kinds of loans.

Using an interest-only mortgage calculator can give you a clear picture of what you’ll be paying from the start to end of your loan. Here are some quick tips:

Know your term

Some interest-only terms last for five years – others last for 10. That’s the time that you’ll only be paying the interest on your loan. For example, you could have a 30-year mortgage with the first 10 years being an interest-only period. After that initial period, lenders provide a couple of different options. You may pay off the principal or pay a combination of principal and interest monthly. You’ll need both the full and interest-only term in order to accurately calculate your payments with the mortgage calculator.

Add in prepayments

You’ll be able to add in monthly, yearly or one-time prepayments to your calculations. Prepayments can lower your principal balance during the interest-only period, which is something you might want to consider. Since your interest rate will rise significantly after the initial interest-only period is over, you’ll want to pay off as much as possible.

Traditional or HARP refinance

If your mortgage payments are high and you’re looking for lower mortgage rates, you might want to consider a traditional or HARP refinance. As of Jan. 19, 2012, Freddie Mac put the average 15 and 30-year fixed mortgage rates below 4 percent – that can add up to a lot of savings in interest over a period of time.

For a traditional refinance, you’ll need to show that you have plenty of equity in your home – at least 20 percent or more to avoid mortgage insurance – haven’t missed any mortgage payments and have better-than-average credit.

The Home Affordable Refinance Program, HARP, is for you if you currently have a Freddie Mac or Fannie Mae loan, don’t have much – or any – equity in your home and can actually afford the new loan payments.

In any case, mortgage rates are low, so now might be the time to look into refinancing.

Forbearance

Some lenders will actually briefly reduce or suspend your mortgage payments for a set period of time if you’re facing a financial hardship. Granted, forbearance isn’t for the long-term. It’s more of a get-out-of jail-free pass until you find your financial footing again. Consider asking your lender about this option, if your financial suffering is short-term, and if you think that you might miss a payment — or already have.

Generally, your lender will combine forbearance with a repayment or reinstatement plan. These plans usually come with fees or late payments, but it’s a better option than completely defaulting on your loan.

Traditional or HAMP Modification

If you’re already well behind on your payments, or believe that you might be behind soon, modification might be for you. A modification comes in the form of an arrangement with your mortgage company that changes some of the original terms of the agreement — often mortgage rates or the loan term.

The Home Affordable Modification Program, HAMP, is your go-to solution if you have a Freddie Mac or Fannie Mae loan, took out your mortgage before Jan. 1, 2009, don’t qualify for HARP and spend more than 31 percent of your pre-tax income on your mortgage. You also need to be the primary resident of the property.

Here’s how:

Enter your current mortgage amount

In order to calculate how extra payments will affect the interest on your loan, you’ll first need to give the mortgage calculator some info. You’ll need to know the original loan amount, the original term, your interest rate and the day your mortgage started. Enter all of that information into the calculator and hit calculate. That should give you an estimate of your current monthly payments.

Check out the amortization schedule

Look at the calculator’s amortization schedule to see what you’re currently paying in interest, and what you’ll be paying over the life of the loan. If you have a long mortgage term and a high interest rate, chances are the accrued interest over time will be pretty steep.

Add in extra mortgage payments

Most calculators will have an extra payments feature. You’ll need to add per month, per year or lump sum additional payments and then hit calculate, which will give you the new amortization table. Compare the new schedule to the old one – with and without additional payments – to see the difference. If you’re making any kind of additional payment, your interest will drop over time.

Don’t be shy. Feel free to mess around with the mortgage calculator and see what extra monthly, yearly or lump sum payments can do for your wallet.

Policies can cost thousands a year. Insurers base premiums on a number of factors, including square footage, estimated rebuilding costs and your overall risk factor. The square footage and rebuilding costs will stay the same – unless you add on to your home – but your risk profile can change over time. Periodically reassessing your risk can really save you some cash down the line.

Here’s how to get started:

Bundle for a better rate

Bundling your policies – auto and homeowner’s insurance – with one provider can really save you some money in the long-run, sometimes up to 15 percent. And if you’re a loyal customer, meaning that you’ve been with the provider for a while – usually three years or more – you might be eligible for another discount. But if your current provider doesn’t want to give you a break, start shopping around at other insurance companies to see what’s out there.

Make home improvements

One quick and easy way to really save on your homeowner’s insurance is to make some safety improvements. Check with your provider before you start hammering away at your home, but most will offer discounts for security systems and new deadbolts.

Take on more deductible

One of the easiest ways to lower your monthly premiums is to increase the deductible on your homeowner’s insurance. Just a small increase can really reap big savings. Talk to your provider about how much you’ll save monthly and figure out whether or not it’s worth the extra responsibility.

If you’re looking for more cash and haven’t yet considered refinancing, it might be worth checking into. As of today, Jan. 12, 2012, the national average mortgage rates for a 30-year fixed mortgage are at 3.89 percent, according to Freddie Mac’s Primary Mortgage Market Survey. If you have excellent credit, you might even be able to get a lower rate.

The best way to do that is to first ascertain how much of your income you can afford to devote to a mortgage. Then, use a mortgage calculator to figure out the size of the mortgage you can handle. Those two figures should give you a general price range.

Here a few steps to get you started:

Step one: Assemble all of your personal financial information including credit card statements, insurance policies and figures for any other personal debt you may have. Add up how much you owe, and then add in the amounts you normally pay for food, clothing, recreation and vacations. Plug those figures into a budget sheet, which should give you a good idea of where you stand on monthly expendable income.

Step two: Move on to the calculator. Mortgage calculators can give you an estimate of your potential monthly mortgage payments and map out the percentage of those payments that will go to interest and principal over the length of your loan. There are plenty of free calculators online that can give you a general estimate of your monthly payment. But it might be wise to ask your personal banker for help after getting an estimate from the free tool. After all, you’ll be approaching your bank for a mortgage loan anyway when you’ve found the home you want to buy.

You’ll need to gather some general information, such as the mortgage amount, mortgage term, interest rate and the mortgage start date.

Step three: Figure out your housing price range by running the numbers for both the low end and high end of the range. For example, plug in the lowest and highest interest rate you could receive along with a variety of housing prices. The monthly payments for a $200,000 mortgage loan at 3 percent will be much lower than the same home with a 7 percent loan. That should help narrow your selection and give you a decent price range.

Always take your budget into consideration when using a mortgage calculator. Save room in your budget for maintenance and unexpected home repairs.

HARP is meant to help those that owe more on their home than it’s worth. It was originally for borrowers that owed up to 105 percent of their home’s market value, but that cap was later raised to 125 percent. The cap has now been lifted completely.

The qualifications

HARP 2.0 stipulates that you will only qualify if you have not missed a payment in the last 6 months and only missed one payment within the last year. If you don’t meet these criteria, you’ll need to wait to apply. And if you’ve already gone through a HARP refinance, you won’t qualify at all.

The wait

While you can start applying for HARP 2.0 now, there are only a handful of lenders accepting applications. That’s because Fannie Mae and Freddie Mac have to update the changes made to HARP in their automatic systems. That process could take up to a few months to complete. But there’s a catch – if you can find a lender that underwrites manually, then you can get started much earlier.

The upside

If you qualify for HARP 2.0 and lower mortgage rates, you could save thousands over the life of the loan. It won’t reduce your principal balance, but you’ll pay significantly less in interest. And if you refinance with your current lender, your credit won’t be checked and you won’t need proof of income – that’s good if you’ve had a pay cut or a hit to your credit. The lender will simply call your employer for proof of employment.

If you have to wait to refinance, start getting ready now. Fix any errors on your credit history and talk to your lender to figure out when and how you can refinance under the new guidelines.

I’m interested to see whether or not mortgage rates rise while homeowners are waiting for HAPR 2.0 to kick into gear. With the Fed doing their best to keep interest rates low – at least until the middle of 2013 – I’m thinking that rates will stay low for a while longer. What do you think?

Michele Miller is a passionate Realtor from Worcester County, Massachusetts who joins us this week to share her experience and knowledge on the housing market in this current economic situation.

How is the housing affordability in your city?

Right now, bank owned properties and straight buys are selling quickly if they are priced under the $150K range. Investors are buying up the bank owned properties and either holding them to rent and then sell when home values increase again. Straight buys are still steady but buyers are looking for homes that are move in condition.

What’s going on with down payments-are buyers having to make bigger down payments nowadays?

Buyers I’ve worked with, are putting less than 3% down on properties. Some VA loans still offer 100% financing. I still feel that more renters should be taking advantage of this current market and should be considering home ownership as opposed to renting. Rents have increased in the city recently and interest rates are still in the low 4′s.

In your opinion, would the new efforts taken by the government with HARP (Home Affordable Refinance Program) help the current housing market and its depreciation of the home values?

Yes, but there are still homeowners that need assistance even if they go through the program. Some are still not familiar with the program and don’t know how to go about starting the process. I think through media, homeowners can be informed about the benefits of this program as they  may not even know it’s available.

What are the most popular home buying sales you see closing? Foreclosures? Short Sales? Straight buyers?

Within the last few months, I have been working with straight buyers and first time home-buyers who do not want to wait on a short sale nor risk title issues on a bank owned property. They are very savvy and looking for properties that are in ‘move in’ condition and comparing properties very closely.

Has your target audience changed with the economic change?

ABSOLUTELY! After taking a recent webinar on marketing, I learned that you can’t be a worm, so to speak, you have to be an octopus, meaning you can not just be visible in one place on the internet but in several places to reach buyers and sellers. Earlier in my career, I worked with homebuyers buying up, now I’m working with more first time home buyers and sellers because of my home staging expertise. I approach For Sale by Owners first to help with staging their homes, then if they find selling on their own gets too difficult, I hope to be hired.

Has your marketing approach changed? Promoting more through online or traditional marketing tactics?

MOST DEFINITELY! I had to. I am now on several social media platforms and have been blogging content about my listings, home staging, the current market and local businesses and events. I seldom use print advertising but there are still clients who look for homes this way and feel it is still beneficial. Although 98% of buyers are now searching for a home on the internet first and no longer are looking in the paper. With virtual tours and the world of “YouTube”, buyers can almost visualize these properties and make a decision before setting up a live showing. Most have already made up their minds before actually entering the home.

Thank you Michele for sharing your insights about the real estate market in Worcestor County.

Is an ARM right for you?

Adjustable rate mortgages, once a pretty big risk, are now slowly coming back into style. That’s because interest rates have remained low for quite some time. According to Freddie Mac, the average 5/1 ARM as of Dec. 8, 2011, is 2.93 percent. That’s enticingly low, but is an ARM right for you?

You can get a good idea of how much you’ll actually save by entering the interest rate for the ARM into the calculator and comparing that figure to interest rate for a 30-year. Weigh the risk of the ARM against how much you’ll save – the risk being that rates will rise and leave you paying more than you would with a regular 30-year fixed mortgage.

Keep in mind that you’ll need excellent credit to receive the lowest mortgage rates, so it’s wise to estimate the interest rates you’ll receive on the high end.

Early payoff

Use a simple mortgage calculator to find out how much you’d save by paying off your mortgage early. Why payoff early? If you wait the entire 30 years to pay off your mortgage, you’ll end up paying significantly more in interest.

To calculate how much you’ll actually save, enter a one-time, monthly or yearly contribution to the extra payment category – most calculators you’ll find online will have an extra payment category and an amortization schedule. Look at the amortization schedule after you’ve entered the extra payments to find out how much you’ll save in interest.

Monthly payment

Before you buy your dream house, it’s a good idea to estimate your monthly payments. Even if the bank will lend you the money, it might not work for your budget. A mortgage calculator will help you estimate those payments. You’ll need your mortgage amount, term, interest rate and start date.

This week we invited Realtor Gayle C. Rich-Boxman from Fishhawk Lake, Oregon to shed some light about the real estate market she has actively been involved in for the past 6 years.

How is housing affordability in your city?

From five+ years ago, when I started my real estate career in this lake property community at Fishhawk Lake, which is mainly compiled of second homes, a lakefront property that I sold was $365,000. Today, a comparable property is selling for about $250-280,000. The clients that I have who are buying vacation property or looking to make it a full-time residence eventually have been quite smart about their money. Either they easily have the down payment for a loan or they pay cash. So, the term “affordable” is totally subjective.

What’s going on with down payments- are buyers having to make bigger down payments nowadays?

I am not seeing down payments being much different in my niche, which is pretty strongly focused on lake properties. If there is the offer of private contract terms by the seller (vacant lots), then 20% cash down is the standard, the rest of the contract terms are case-by-case.

And how does that affect the housing market?

That has not affected the housing market in this area. However, USDA loans are possible because of the rural community that I service. However, in the last two years I have only been involved with one.

What are the most popular home buying sales you see closing? Foreclosures? Short Sales? Straight buys?

The short answer is: straight buys for the most part. We are an unusual community all the way around. We aren’t considered a strictly “resort community”, because about 20% of us live here full-time and work. We can’t compare to the coastal properties of Oregon or other resort-type of communities or lake communities in Oregon, we are our own entity, and are a contained, self-sustaining community with our water and sewer systems. In regards to buyers and sellers at Fishhawk Lake, the “most popular home buying” sales relate to those who have expendable income. And most sellers here aren’t in financial trouble, either, because often, they are second homes and they either own them outright or can handle the payments without going into default. There have been a handful of foreclosures, but none that I’ve listed.

Has your target audience changed with the economic change?

No, it hasn’t changed because of the economic downturn, I have just seen an upsurge in younger families buying in the last couple of years, compared to the first few years that I was a broker.

Has your marketing approach changed? Promoting more through online or traditional marketing tactics?

My personal goal this year was to become more internet savvy and create a bigger awareness online, because this is where many of my buyers find me. Since I live full-time at Fishhawk Lake, and have for years, my sellers know about my strong presence in the community. (I also volunteer for our Homeowner’s Association on the Firewise committee). But, to get more “Google juice” I took Search Engine Optimization courses, I became much more “active” on  ActiveRain, which has helped my internet presence, and I write for a local paper in Vernonia called The Vernonia’s Voice. I plan to step up my video efforts eventually, and I blog on ActiveRain just about every day and have many photos that I include. I learned how important linking is and I also have my own website and a WordPress blog. You have to layer your marketing efforts, and of course word-of-mouth is the BEST marketing anyone can ask for and my clients have sent other clients my way, too!

Thank you, Gayle for participating in our Q&A series!

Calculate the costs

Even though you’re refinancing at a lower rate, you don’t always save as much as you’d like. In fact, sometimes you can lose money. Shoot for an interest rate that’s an entire point below your current rate, especially if you aren’t going to stay in your home long-term – closing costs and taxes might eat up any long-term savings. Keep in mind that you aren’t getting rid of debt by refinancing, you’re simply reorganizing it. Expect to spend at least 3 to 6 percent of your (outstanding) principal on refinance costs. To estimate those costs, try using a mortgage calculator.

Have a little patience

Mortgage refinance can really be beneficial if you plan on staying in your home for an extended period of time. But since the mortgage bust, lenders have tightened up their restrictions to prevent faulty refinance – which means a lot more work on your part. And to get the best mortgage rates, you’ll need to have impeccable credit and a good amount of equity in your home.

Call your lender

See what your current lender can do for you. If you’re a good customer – pay your mortgage on time and have good credit – they’ll want to keep you. Lenders know they need to compete in a low-rate environment, so they might be willing to work with you on lowering your rate.

If you can’t get much out of your current lender, shop around. It doesn’t hurt to call and see what you can get. Upfront mortgage lenders or mortgage brokers might be worth looking into as well for lower mortgage rates.