How risky can you afford your mortgage to be?
By Justin Hunter
Everyone hopes to one day own a home.
Unfortunately most people do not have
the necessary funds to make this happen.
Even with a traditional mortgage, many
Americans struggle to come up with a large
enough down payment that will allow for
a manageable monthly payment.
There are many other options, other mortgages
(usually referred to as nontraditional)
to get financing for a home. But with
these nontraditional mortgages comes nontraditional,
or risky, terms which may or may not be
beneficial for your particular situation.
The article, “Types of High Risk
Mortgage” written by Joseph Kenny
and posted on jumboloanrates.net, provides
information on a few risky mortgages which
may help you decide whether you should
wait until you have the necessary funds
for a traditional loan.
“As the cost
of houses continues to increase, fewer
people are able to afford them. Many creditors
have responded to this situation by creating
a new class of mortgages that are quite
risky. A large number of people have begun
getting these mortgages, and the payments
are generally low when you first get the
loan.”
The riskiest loan available is the option
payment mortgage. This loan allows you
to decide just how much you want to pay
each month. You can pay the principle,
interest or minimum amount allowed by
the lender. However, there is a chance
that you will end up paying much more
than you anticipated over the life of
the loan. The longer it takes to pay off,
the more interest will have to be paid.
The next risky mortgage is the interest
only mortgage. “As the name implies,
this is a mortgage with which the borrower
pays interest on the loan for a set number
of years. This could be ten years, and
at the end of the ten years the borrower
would begin making payments on the principle.”
The significant risk of this mortgage
is that the payments that will include
your principle charge will be substantially
higher than your interest only payment.
As a result, you may not be able to afford
and thus default n your monthly payments.
It is only wise to get this mortgage is
you are low on funds now and know that
you will be receiving a lump sum of money
in the near future.
A piggy back mortgage is a loan in which
two mortgages are taken out which equal
more than 15 percent of the value of the
home. “This percentage is paid towards
the home in order to avoid paying for
mortgage insurance.
This can be risky, because if the value
of your home falls you will have to sell
it for a price less than what you borrowed.
You also don't have any equity that can
be used to protect you. This mortgage
should only be used when you have a large
down payment but want to avoid paying
for mortgage insurance.”
The last type of well-known risky mortgage
is the forty year fixed mortgage. This
option provides you a fixed rate for 40
years instead of the traditional 30, resulting
in a lower monthly payment for a longer
period of time. Unfortunately, through
this mortgage you will most likely significantly
overpay for your home.
Banks and lenders have realized that everyone
wants a home and will do or pay just about
everything to obtain one.
“You should never get a mortgage
on a home that is outside of your price
range. You should look and your income
and decide what you can afford. If you
get an Adjustable Rate Mortgage you should
calculate how much your payments will
be monthly in the interest rate suddenly
increases. It is generally best to go
with a mortgage that has a fixed rate.”
You can always make your monthly payment
lower, but is it worth the risk?
