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Mortgage Loan – The Good, the Bad and the Ugly!

Finding the right mortgage loan can be a challenge since you have many options. However, the mortgage that is right for you will depend on your current financial situation, the economic condition and if you have a high tolerance for risk. Knowing the pros and cons of different types of mortgage loans will help you make a more educated decision.

During the time that you own your home, you want to choose the mortgage with the lowest total cost.

• If you only plan to live in your home for a few years, consider and adjustable-rate mortgage which will give you a much lower initial interest rate.
• If you plan to own you home for many years and interest rates are at an all time high, you may want to consider an adjustable-rate mortgage. An adjustable rate will have a lower start off rate than the fixed-rate mortgage
• On the other hand if you will own your home for a long time and the interest rates are at an all time low, you may want to consider getting a fixed-rate mortgage. Obtaining a fixed-rate mortgage during low interest rates will lock in the low rate over the life of your loan.

Some mortgages such as graduate-payment loans and interest-only loans are appealing for their low monthly payments. But only consider these options if you expect to have a problem paying the monthly loan payment. However, if you plan to live in your home for more than a few years, these loans may not be the best choices because:

• The total mortgage cost over the life of the loan tends to be higher in comparison to other loans.
• The interest-only loans do not build equity through amortization and the graduated payment loans can result in negative amortization.

If you are not certain whether a fixed-rate or an adjustable-rate mortgage is better, you may be happier and much safer with the fixed-rate mortgage. For the non-risk takers, the fixed-rate loan offers the peace of mind that comes from knowing that your mortgage payment will not increase over the life of the loan.

Pros and Cons of Fixed-Rate Mortgages

Described below are the advantages and disadvantages of four different kinds of fixed-rate mortgages:

1. Fixed-rate balloon Mortgage Loan – Advantages

• Predictable P&I payment
• Lower interest rate
• Rise in market rates will not cause hardship

Fixed-rate balloon Mortgage Loan – Disadvantages:

• Rates at payoff could be unappealing
• Do not benefit when market rates drop
• May have to refinance to pay off loan

2. Biweekly Mortgage Moan – Advantages:

• Will not suffer when market rates rise
• Payments are smaller
• Pay off loan quicker

Biweekly loan – Disadvantages:

• More payments in a year
• Do not benefit when rates fall.
• Beginning rate could be higher than ARM

3. Interest-only Loan – Advantages:

• Lower monthly payments
• Will not suffer when market rates rise

Interest-only Loan – Disadvantages:

• No debt reduction through amortization
• Must renew, refinance or payoff early

4. Conventional fixed- rate loan – Advantages:

• Predictable P&I
• Do not hurt when market rates rise

Conventional fixed-rate loan – Disadvantages:

• Do not benefit during a rise in market rates
• Beginning interest rate is higher than ARM

Adjustable-rate mortgages also have its pros and cons, overall payments decline when market fall, low initial rate compared to fixed-rate and you can lock in fixed-rate if rates fall. Disadvantages show that payment increase when rates rise, there is no stability because payment change over time and rates at payoff could be unattractive.

Okay, so there you have it – mortgage loans, the good the bad and the ugly. Although everything about mortgage loans – the pros and cons are not listed here, I hope this is enough information and a good start to get you moving in the right direction. Good Luck!

Tags: Loan Payment, mortgage loans
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