There is nothing as good as wanting to do something and having the right amount of money to do it. However, beyond that is the fact that there are some times when taking a loan or mortgage could be the most reasonable option. If you are paying a monthly rent of $1,000 for you and your family, it would come to 480,000 USD in 40 years. If you had taken a mortgage of $200,000 40 years earlier, you would have finished paying the capital, interest and have some little extra money with the house being yours. Remember that in the case of the rent, the house will still not be yours as opposed to the house now getting to be yours in the case of a mortgage. In most cases, the value of the house would have significantly increased as well to as high as the total amount you have paid for it in 20 years or at the very least half. This article will discuss if a mortgage could be risky and what risks customers should avoid when taking a mortgage.
Could a mortgage be risky
The answer to this question is that a mortgage can be risky to both the mortgage company and the customer. With the experience of what happened during the housing crisis that happened a few years ago in the United States of America, people now understand that mortgages could be risky. A mortgage is considered risky if the loan given out does not correspond to the ability of the borrower to pay it back. The wrong borrowers were matched with some types of mortgage and the mortgage companies were hoping to refinance and thus, continued to give such mortgage. If home prices continued to rise, it would have been possible, but with a fall in the prices of house, the plan of the mortgage companies backfired resulting in the housing crisis.
Very Long Term Mortgage
One of the risks you might want to avoid if you want to take a mortgage and is taking a very long mortgage loan. In most cases, when you are going to pay over a longer period, you would be expected to pay a lesser amount. However, by the time you calculate the money, you would be paying would be more. For instance, if you take a 20 years mortgage, you would pay less per month. However, the interest you will be paying would be more with 20 years mortgage as opposed to 10 years mortgage. If you are going for a 40-year mortgage, you would end up paying an interest that will be more than the worth of the house that you took the mortgage for. Thus, it is best to choose the shortest time you would be able to comfortably make the payment monthly. You can read reviews about Mortgages to know which reliable companies can offer you the best mortgage loans.
Adjustable-Rate Mortgages (ARMs)
Another risky type of mortgage is the ARM that comes with an interest rate that is fixed for the short initial term. For this type of mortgage, the initial fixed interest that would only run for the first few months of the mortgage would be lower than a mortgage whose interest will be fixed throughout the tenure. However, once this initial term that the interest rate is fixed passes, the interest rate will fluctuate. The implication is that it would be unpredictable and it might go higher than you can pay for. Thus, it is not a good idea as you don’t want surprises in the middle of your mortgage that could offset you.
Internet Only Mortgages
Another risky mortgage you might want to be warned about is Interest-Only mortgage. This type of mortgage allows you to pay only interest for the first few years of the mortgage. After this period, you can now start paying the principal and interest for the remaining period. Apart from the fact that you would be paying more than for a normally fixed mortgage, you would also be paying more at a later time than you were paying initially. The mortgage could be great if you have irregular income at the moment or you are sure that your salary would increase in the next few years. However, if things don’t go as planned or if your expenses increase with your salary without any difference, you could get stranded.
This type of mortgage combines the risk of interest-only mortgage and ARM. It means if you go for this option, your interest would start fluctuating at a later time, while you will have to start paying the principal probably around that same time. It is one of the riskiest types of mortgage you can take and you would need to be able to spare much more than you are paying on the mortgage at the earlier time to be on the safer side.
Little down payment mortgages
As opposed to mortgages that allow you to pay 10 per cent or 20 per cent initial deposit for the mortgage, the low down payment option allows you to pay as low as 3.5 per cent. The major risk with this type of mortgage is that if house prices should fall, you would not be able to refinance or sell the house.