Bad Things About Mortgages

Home mortgages can offers some distinct disadvantages.
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Unless you are fortunate enough to strike oil or win the lottery, or have a rich Aunt Gracie who leaves you a bundle when she meets her demise, you'll probably need to take out a mortgage loan to buy a home. A mortgage lets you to pay for the home in manageable installments over time instead of forking over a six-figure sum at the outset. On the other hand, mortgages do come with a downside.

Long-Term Commitment

A mortgage can last up to 30 years, or even 40 in some cases. The prospect of being in debt for that long can be frightening. Shorter loan terms, such as 15-year mortgages, are available, but they typically require higher monthly payments. If you must sell early due to a change in job status or other reasons, there is no guarantee that you will be able to sell at a profit, especially if property values in your area have declined.

Change in Interest Rates

When you purchase a home, you generally choose between a fixed-rate mortgage in which the interest rates and payments remain the same for the life of the loan, or an adjustable-rate mortgage where the interest rate can change at predetermined intervals. Some homeowners opt for the latter because an ARM usually offers a lower initial interest rate and lower payments. However, if the rate increases, the monthly payments also increase and may no longer be affordable.

Risk of Foreclosure

When you purchase a home by taking out a mortgage, you are using the property as collateral to secure the loan. If you fall behind on the payments, the lender can initiate foreclosure proceedings and take back the property. In addition to not having a place to live, you also get a black mark on your credit that can have a negative impact on your life for years to come.

Additional Costs

Related expenses are often involved with a mortgage. If you make a down payment of less than 20 percent, your lender is likely to require you to carry private mortgage insurance to protect itself in the event of default. You may also have to pay closing costs, which can run in the thousands of dollars. As the lender holds a lien on the property, it can also require that you carry homeowners insurance until the loan is paid in full.

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