What You Need To Watch Out For When Availing a Mortgage

A dream home at the top of the hills? Realistic yet pricey. Having your own home is a completion of one’s dream; it’s good when you have the cash to fund it but what if you don’t?

That would seem devastating; however, banks and lenders are very willing to help you but it comes with a mortgage.

What is a mortgage?

A mortgage is a loan in which you have collateral, specifically your house. Most lenders will let you borrow an amount of money in exchange of the 80 percent of your house upon completion. If you pay your mortgage religiously, they will have nothing to do with your house but if not, it can be foreclosed.

There is a good mortgage though. A good mortgage is 4% APR. This is the competitive rate if you do not have a handsome credit history.  This rate may look attractive yet borrowers have to be careful in making a decision. There are many kinds of mortgages and it’s the bad side of it you need to watch out.

Mortgages and Their Disadvantages

Fixed-Rate Mortgages. This is the oldest and the very first type of mortgage that is always offered by lenders. This kind of rate offers a neat interest that will not change until the loan has been fully paid after the term you agreed to pay, may it be 15, 20, or 30 years maximum. The only thing that will move is the numbers of the property taxes and insurance payment for every monthly bill. It looks attractive but there is still a disadvantage with this.

First is the 30-year fixed-rate, longest loan term being offered. This offers the lowest monthly payment but you’ll end up paying a big chunk of interest that could even be double the original amount. The second is the 20-year fixed-rate; this rate will give you a large monthly payment. On top of that, this term will build up more equity in your home sooner than it is finished building the house. The third is the 15-year fixed-rate; it is short term and quicker to pay off but comes with a higher monthly payment.

Adjustable-Rate Mortgage. The loan itself is adjustable but the interest also changes every year. The whole thought of having an adjustable is a changing monthly mortgage depending on how the economy is doing. The economic fluctuation can greatly affect your interest.

Balloon Mortgage. This mortgage is considered the riskiest mortgage to be offered. This kind is short-term, allowing you to borrow an amount that is payable in seven years. You feel good about it since it sounds realistic. This mortgage will give you a low monthly payment which you feel happy about. But this mortgage is true to its name. At the end of five years, you would owe the bank a huge amount of the principal like a balloon that started small but once inflated grows bigger until it bursts. Borrowers must be very careful and keep an eye on it because this could lead to foreclosure.

Reverse Mortgage. This type of loan is simply designed for homeowners that are older than 62 years old.  The homeowner will borrow an amount against the equity of their home but the good thing is, they are allowed not to pay back the loan as long as they will not be selling it.  However, foreclosing is the bad part of this type of mortgage since it can top the insurance and the taxes as well.

Conclusion

It’s good to build your own home if you have the money to do it so you won’t have to worry about mortgages but let’s be realistic, 80% of Americans can’t simply do it without applying for a home loan.

Before you make a decision talk to a bank financial expert regarding mortgages and loans, and make sure you understand everything clearly. Also, make sure that you maintain a good credit rating as this will help bands and lenders decide whether you are capable of paying. If you have an amount of cash that is bigger than the down payment percentage, you may use it to ease up when it comes to monthly billing.