Are You Entering Into a Risky Mortgage?

The mortgage industry has come up with a number of products to make it easier and more affordable for potential home buyers to get a home. But that doesn’t mean that all of these products are good for the buyer. In fact, some of these products are the reason that the real estate market is in the turmoil that it is in today. Here are some of the riskier mortgage products and how to avoid making a mistake that could cost you your home and your credit.

1. The 40-Year Mortgage – Everybody always talks about how a fixed-rate mortgage is generally better than an adjustable rate mortgage. While that may be true in many instances, the 40-year fixed rate mortgage is a product you should stay away from. Paying the interest on a 30-year fixed rate mortgage is bad enough, but extending the loan for another 10 years only means that you will be paying thousands more in interest. This type of mortgage will follow you into retirement and it could jeopardize your chances of enjoying retirement, paying for a child’s college or leaving an inheritance.

2. Adjustable Rate Mortgages – Many homeowners found themselves in dire financial need in the last couple years because of adjustable rate mortgages. These are the types of mortgages that offer a fixed (often low) interest rate for a period of time. Once that time passes, the rate adjusts periodically. If the mortgage rates increase, your monthly payment could go from a few hundred dollars to a thousand dollars or more. This is why many homeowners simply left their homes behind – because they could no longer afford the mortgage payments because they adjusted so dramatically.

3. Interest-Only Mortgage Loans – With this type of mortgage loan, the homeowner only pays the interest for the first several years of the loan. This may sound like a good idea at first, but the interest rate for these types of loans is usually higher than a traditional fixed rate loan and you could be paying more than necessary over the term of the loan. Also, these types of loans are usually defaulted on more often than traditional loans so stay away from interest-only loans if at all possible.

4. Mortgage loans with low down payments – Buying a home with only a small investment seems ideal. However, if you only put a small down payment on a home and then the home prices drop in your area, you could be stuck. It will be much more difficult (if not impossible) to sell your home or refinance it in this type of situation. A ten percent down payment or more is ideal when buying a home.

Before signing your name on the dotted line, it is critical that you choose a mortgage product that is right for you and will not cost you thousands of extra dollars in the long run. Be sure to choose a lender that you can trust and always understand your mortgage loan before making your final decision. Your financial future depends on it.