Not every mortgage is created equally. Finding the right lender means finding a mortgage that meets your needs, not just one that looks good but could potentially hurt your finances. A risky mortgage is one where the ability of the person asking for the loan to pay it back is lower than the loan amount.
These types of loans are largely what lead to the recent recession. The loans themselves weren’t necessarily bad, they were just too heavy a burden for the people who were being given those loans. If you want to avoid a risky mortgage, here are four types you should look out for:
- Very long-term mortgages. For someone who has never gotten a large loan before, twenty or thirty years already feels like a long term. However, there are 40-year mortgages available, too. When someone picks this term, they are going to be paying more than three times the amount of interest they would with a fifteen year mortgage.
- ARMs. While adjustable rate mortgages do have their place and they might be the ideal choice for some, an adjustable rate mortgage can be considered risky. After the teaser rate expires, there are usually at least five and as many as twenty years still on the loan, during which the lender can adjust the rate to match the new interest rate norms. While this can be great if interest rates decrease, it can be devastating if they sharply increase.
- Interest only mortgages. Again, this option can be great for some, especially those who do not have steady income or who are poised to start making a great deal of money in the next five years. However, these mortgages usually have higher interest rates than other types of mortgages, which can make them much more expensive in the long run.
- Mortgages requiring low down payments. This isn’t always true, of course, but recent studies have shown that these types of mortgages will often have very low standards for foreclosure, which means that while you do not have to put down a huge payment in order to secure the loan and the home, you have a much slimmer margin for error, and selling or refinancing is more difficult.
Not all types of mortgages are wrong for everybody. Talk to your Homesure Lending Agent about your specific needs.