Gambling is more popular than ever in the United States, but you don't want to bet on your house.
Stepping up the Game
In the last few years, when home prices were high and interest rates were low, many people signed up for interest-only loans, payment option adjustable rate mortgages, and piggybacks. When they do this, they usually bet on two things: that they will be able to refinance and get out of future payments that they might not be able to afford, and that home prices will keep going up and they will be able to sell the house later for a profit.
Today, however, home prices aren't rising as quickly as they did during the boom, and as interest rates rise, it may become harder to refinance at a low cost.
A Safer Bet
In today's economy, mortgage insurance on a fixed-rate loan is often a better deal because it offers lower monthly payments and more stability. Mortgage insurance is made for people who don't have much money for a down payment. Most of the time, borrowers with a down payment of 3 percent or less are eligible.
"Mortgage insurance on a fixed-rate loan is easy, safe, and smart," said Steve Smith, President and CEO of PMI Mortgage Insurance Co. "It's not like other types of loans." "It's easy because, unlike a piggyback loan, you only have one loan and one monthly payment, and mortgage insurance stops when it's no longer needed. It's safe because fixed monthly mortgage payments are stable and easy to plan for. If interest rates go up, you won't notice and you won't have to make big payments all at once. It's smart because you don't have to wait until you have a 20% down payment saved up. Mortgage insurance makes it possible for you to buy a house and start building wealth right away."
Doug Long, CEO of one of the fastest-growing privately owned mortgage lenders in the country, Pinnacle Financial, said, "The old saying, "If it sounds too good to be true, it probably is," applies here. Mortgage financing products are the same, and borrowers need to make sure they are getting a good deal both today and tomorrow, when their monthly payments might go up. It shouldn't be a gamble to stay in your home."
Making the odds work for you
When choosing a mortgage, you should know what risks you are taking. You can take the risk out of mortgage financing by figuring out how much it will cost, both now and in the future, if interest rates go up, balloon payments come due, or introductory periods end.
