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Let's face it, mortgage lenders don't care what kind of loan they sell you, just as long as they sell it to you. Your real estate agent don't care either, just as long as they closed and get their commission.
There are mortgage traps out there just waiting on you and if you are the prime candidate for one of these mortgages, you could be face with a possible foreclosure in your future.
You have seen them on television commercial and the internet. They sound like this: $200,000 Home Loan for $580/Month. $310,000 Mortgage- $999/mo. $150,000 for $475/Month.
These mortgages spell disaster to your finances.
* One mortgage trap is the The Pay-Option Adjustable Rate Mortgage:
This type of mortgage only required's you to pay the minimum payment. Think about how a credit card works, if you just pay the minimum payment every month, you are creating a negative amortization, in other words you owe more on the loan, then what you borrow. This kind of mortgage offers you to write check on their low payment option.
When the interest rate goes up, you may find this mortgage was a bad ideal. This is a very risky mortgage if you are on a fixed income.
* The second mortgage trap is The Cash -Out Financing:
You have seen theses mortgages blasted everywhere, the problem is that most homeowners really don't fully understate what these terms truly mean. Lenders tell you that you can borrow more money than what the home is worth.
Example: Borrow 125% more than the value of your home.
This money is use to pay off credit cards, renovations and cover closing cost. Here's the bad news, if your home doesn't go up in value, you will not be able to refinance. When you are ready to sell your home, you may be require to pay the difference from what your loan balance is and the sell price.
* Adjustable-Rate Mortgages (ARMs)
Easy to get into but you may find your mortgage going up in the first three years. If your income don't keep pace with the increase payments, you will find yourself falling behind on your mortgage and other household expenses.
If you're on a fixed budget, this mortgage is not for you. the payments are variable and could cost you more then what you can afford.
* Interest Only
With this kind of mortgage, you will never own the home. It's an interest only option on the ARM. You really aren't doing much better than if you were renting a home. These are Three - Year, Five-Year, Seven-Year & Ten -Year terms.
You are more likely to default on this type of loan. After the introduction of the "interest only" your loan will be called to balloon "ouch" Your payments increases to cover the balance of the interest and the balance of the principal. Your payments might be low the first year and the following year it could increase by a third of your mortgage payment.
You might have to get a part-time job just to keep pace with your increase payments. I don't recommend this type of mortgage.
* Fixed-Rate Loans
This is a new type of financing in the mortgage market, it's a 40-Year and 50-Year Fixed-Rate Mortgage. The problem with these loans is that you build equity at a snails pace. If you think paying all that interest for a 30 -Year traditional mortgage scares you, look at the interest on one of these for 40 years.
This loan is not as risky as the others, just don't expect fast equity build up.
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