As the price of houses keeps going up, fewer and fewer people can buy them. In response to this problem, many lenders have made a new type of mortgages that are very risky. A lot of people have started to get these mortgages, and when you first get the loan, the payments are usually low. In this article, I'll talk in depth about these mortgages and what you need to know about them.
Choice of Mortgage Payment
The Option Payment Mortgage is the most risky type of mortgage you can get today. You decide how much you want to pay each month with this mortgage. You can pay the principal, the interest, or the minimum amount that the creditor will let you. With this kind of mortgage, there is a chance that you will pay more than your home is worth. This mortgage should only be used by people who think they are good with their money.
Only in Interest
The Interest Only Mortgage is the second type of risky mortgage. This is a mortgage where the borrower pays interest on the loan for a set number of years, as the name suggests. This could be ten years, after which the borrower would have to start making payments on the loan's principal. The risk with this mortgage is that the payments for the principle will be much bigger than the payments for the interest, and the borrower may not be able to afford it. The mortgage companies and banks win because the borrower has already spent years paying only the interest and not touching the principle.
The Interest Only Mortgage should only be used if you are sure you will make enough money to pay the principle, or if you don't plan to live in the house after the interest has been paid. With a Low Doc mortgage, you get money even if you don't meet all the requirements. The risk of this type of mortgage is that the borrower might take out loans they can't pay back. You shouldn't get a Low Doc Mortgage unless you make enough money to pay for it.
Piggy Back Mortgage
The Piggy Back Mortgage is a type of loan where two mortgages are taken out that add up to more than 15% of the home's value. This amount is put toward the house so that mortgage insurance doesn't have to be paid. This can be risky because if the value of your home goes down, you may have to sell it for less than what you borrowed. You also have no equity that you can use to protect yourself. You should only get this mortgage if you have a big down payment and don't want to pay for mortgage insurance.
Fixed mortgage for a long time
The Forty Year Fixed Mortgage is the last type of risky mortgage. With this loan, the interest rate is fixed, but you have 40 years to pay it off instead of 30. Your payments will be lower, but it will take you a long time to build up equity in your home. The biggest risk with this mortgage is that you may end up paying a lot more for your home in the long run. Now that banks are letting almost anyone buy a home, it's important to keep yourself safe.
Don't buy anything you can't pay for.
You should never take out a mortgage on a house that is too expensive for you. You should think about what you can afford based on how much money you make. If you get a mortgage with an adjustable rate, you should figure out how much you'll have to pay each month if the interest rate suddenly goes up. Most of the time, a mortgage with a fixed rate is the best choice.
