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Mortgage Dangers to Avoid

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A mortgage is a home loan. Many mortgage providers have many different products; therefore, understanding which mortgage is right for you can be challenging. Choosing the wrong mortgage could spell disaster for your finances. For example, you may be locked in on a high-interest rate and struggle to pay the repayments. In this property talk blog, we have a few suggestions so you can do your best to avoid common mortgage dangers, including:

  • Taking on too much debt
  • Prolonged debt
  • Loan suspension
  • High-risk mortgages
  • Dubious Lenders

Too Much Debt

When a lender says you can borrow a million dollars, should you do it? It’s tempting to grab the most money you can borrow, but the risk is you can not service the loan. Interest rates go up and down, and if you get stuck with a high-interest rate making the repayments can be difficult, and if you default on them, the loan can be called in. Always borrow what you can comfortably afford.

Get pre-approved for a loan, choose an affordable house, and you have little chance of foreclosing on it.

Prolonged debt

Many people sign up for a mortgage expecting to be in debt for a particular time. This is standard practice, as lenders show you a forecast of when the debt will be cleared. But personal circumstances may change, where life gets in the way, and the initial repayments that were paying down more of the loan’s principle now become the minimum allowed. When you pay back less, the time to clear the entire loan is longer. Flexibility is crucial and ensures you have it with your home loan. Pay more when you can and less when you need some breathing room to pay for other expenses like growing your family.

Avoid the mortgage danger of preserving with high repayments when you can not afford them. If you default on your repayments, your loan may be suspended.

Loan suspension

A loan suspension can occur if you’re not working with accurate lenders or if you’re not honest or truthful during the consultation process. A loan is suspended if the lenders deem the mortgage to be faulty. This means that they’ve found an issue with it that doesn’t gel with the information they used to clear the mortgage in the first place.

For example, a mortgage company has given you a mortgage based on earning $50,000 a year. However, if you acquire substantially less than a year and the lenders find out, the loan may be suspended pending further investigation.

Risky mortgage types

You might be best advised to avoid particular types of mortgages. Of course, some would work well for people in specific situations, but the average person looking to acquire a new home should probably stay away from them.

Let’s take interest-only mortgages, for example. As the name suggests, this is a type of mortgage where you don’t pay back the capital every month – you only pay the interest calculated from that capital. You’ll have to pay back the money at the end of the term, though – and the overall costs will be very high.

Read more about risky loans over at http://www.investopedia.com/risky-mortgage-loans.

Untrustworthy lenders

You should thoroughly research every lender and mortgage broker you find and consider working with. When people think about untrustworthy lenders, they usually think about predatory lenders or straight-up scam artists. With mortgage brokers, they are paid a commission by a lender of their choosing when you sign for their loan. These guys may set monthly payments so high that you can’t keep up, forcing you to pay high fees, thus increasing their profit. But it would help if you also considered the customer feedback of lenders who aren’t necessarily predatory. The company may not be very good at responding to inquiries or may have rude customer service. These may create significant problems in the future.

Finally, are you aware of reverse mortgages? The value of your home, known as the home’s equity, can be converted into money that can be spent however you want to pay it using a reverse mortgage.

What is a reverse mortgage, and how does it differ from other loan types?

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If you are a retiree on a fixed income but own your home, you can use a reverse loan to pad that income a bit, either by requesting monthly checks or a lump sum from your lender. If you continue to own and live in your home, your mortgage balance will not be due, but you can choose to pay it back whenever you like. If you ever leave home, you will have to pay back the loan balance within a short period, or the proceeds from the sale of the house can be used to pay the remaining balance.

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