What do you do about this?

The answer for paying unexpected expenses is an emergency savings account.

An emergency savings account is a sum of money set aside in an account that is only used for paying any unexpected expenses.

Unexpected expenses come in many varieties and range from a roof leak to a job layoff.

There is no hard and fast rule to determine how much you need in an emergency savings account, only rules of thumb.

If you are still paying off your unsecured debts it is generally accepted that $1,000 is an appropriate amount until you have become "bad debt" free.

If you have nothing more than a mortgage payment or perhaps are completely debt free common recommendation is that you have 3 to 6 months living expenses put aside. Now this is where it gets tricky. Everyone will have different requirements for 3 to 6 months living expenses. The general rule of thumb is to have at least $10,000 available.

This is just a rule of thumb and you will have to do some thinking for yourself here. If your mortgage payment is $2,000 each month, then $10,000 surely will not cut it. On other hand, if you are debt free, $10,000 may be a nice cushion. Once you are living on a monthly budget it will be easy to determine how much you will need for your emergency fund. Make sure that you do not skimp on this account.

Your emergency savings needs to be readily available; money market accounts are usually best choice.

How do they work? Option one mortgage loans are basically interest only mortgage loans, except that first year, you pay only 1.25% of interest on loan. The remainder of interest that is accruing is being added to loan amount. The second year of loan you pay more interest until gradually you are paying either full interest only payments or fully amortized payments (interest & principle). The reason loans are called option loans is because every time you have a payment due, you have option of paying less than interest only portion, interest only or a fully amortized payment. This option would be good in a situation where your income is sporadic.

This mortgage loan type typically gives you 4 payment options in every bill.

Here are your typical monthly payment options:

Option #1 – Pay a 15-Year fully amortized payment amount (p&i)

Option #2 – Pay a 30-Year fully amortized payment amount (p&i)

Option #3 – Pay interest-only portion of loan (Interest Only)

Option #4 – Make a partial interest payment (1.25% - 1.95% depending on your loan type) and defer paying additional interest to total loan amount. (Deferred interest can be counteracted by making bi-monthly payments and by property appreciation)

This type of loan is good if you want to:

Wait a while to refinance again – If interest rates drop again, so does your payment. If you want to accelerate your payments and increase equity quick, pay more on your loan and it will be applied to future payments & will be directly applied to principle balance. Will you want a 30-year loan? Keep option to pay your loan as a 30-year, 15-year, or interest only payments.