subject: Don't Be Tempted Into Unconventional Mortgages [print this page] Buying a home proves to be among the largest financial transactions which most Americans will ever complete. Because of this fact, taking out a mortgage loan on a new home remains among the most significant financial decisions that the majority of people will make. There are a variety of different types of mortgages available on the market.
Some of them are dangerous and even predatory. The individual should exercise caution with these different types of so called unconventional mortgages, especially with sub prime mortgages and adjustable rate mortgages, both of which can have disastrous and ruinous effects years on the person's individual financial condition down the road.
Sub prime mortgages are those very same mortgages that began the destruction and subsequent collapse of both the U.S. and world economy over the past several years. These were loans made to consumers who should never have qualified for them in the first place. While interest rates were low, banks made loans that involved greater principal amounts than were prudent for the borrowers in question, along with lower upfront interest rates which later reset drastically higher.
Once the interest rates reset to the significantly higher amount, the sub prime person's payments skyrocketed. They could not afford the payments any longer. On top of this, they could not obtain a mortgage refinance for the house to a more attractive rate any more, since the property values had declined substantially. Nor could the sub prime consumers sell the house for what they had paid for it at that point.
With few choices and no room left to maneuver in, most of them simply walked away from the properties, took the devastating hit to their credit reports, and forced the bank to go through the trouble of foreclosing on the property in question. Individuals today who are thinking about taking out a loan on a property should keep one thing in mind. No bank should deceive anyone regarding the terms and payment schedule and payment amount of a mortgage being considered.
If people are not completely confident in their ability to repay the loan according to these terms, or have any doubts about the future prospects of their job, then they should simply walk away from a deal which will more likely prove to be a chain around their necks rather than a blessing.
Adjustable rate mortgages are a potentially two edged sword. These are mortgages whose interest rates are reset every one, three, or five years, depending on the terms in the contract. This is a good condition if the interest rates have declined by the time the mortgage resets. It can be a horrible disaster though, if the interest rates have gone up. With higher interest rates come higher monthly payments.
Not too many budgets can take the hit of a suddenly higher monthly mortgage payment, in particular if it turns out to be substantially higher. Once again, the old Roman phrase, "Let the buyer beware", rings true today. In obtaining a fixed rate mortgage, with no risk of a rate resetting, and accompanying payment alongside it, the consumer can be confident that he or she will continue to be able to make the payment on his or her mortgage that was agreed to initially. The consumer will not be forced to seek out a home loan refinance to save the mortgage and house.
by: Nick Messe
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