Cheap Mortgage Loans Present More Problems For Market
Cheap Mortgage Loans Present More Problems For Market
With the real estate market in a real funk, there have been many short term solutions attempted by lenders to gain more business .
In short, banks are tightening up their standards and are having trouble finding lenders to take on the high payments associated with top notch interest rates .
What has their solution of choice been? They want to entice people to get a mortgage loan with a significantly lower payment .
Though this might sound like a good solution on the surface, it has created problems for borrowers and the entire market .
Cheap mortgage loan offers are hurting people financially for the long term and they don’t even realize it .
What are these cheap mortgage loans that have become so popular? They are presented in nice names that make people believe that they are getting a deal .
If you ever hear any lender discussing an interest only loan or a loan with no down payment, then you can bet that something is up .
There are a number of different names given to these mortgage loans and each one has its own ups and downs .
You can bet that the ups are the aspects of the loans that are being presented to potential borrowers at the onset of the process .
The problem with these loans is that they get people no closer to owning a home as they would be if they were renting a home .
Unlike with renting, they have a huge loan on their back, though .
That huge loan is just sitting there and all the person is paying is the interest .
It might sound good on the surface by decreasing the payment substantially, but it weakens a person’s long term financial prospectus a great deal .
The only person who benefits from such a deal is the banker .
With these mortgage loans, a person can put themselves in significant danger and at great risk .
What happens if you lose your job or something unexpected happens? Then, you are saddled with a loan that is too big for your bank account .
In this case, foreclosure is eminent and your family will be left without a home .
Beyond that, your credit will be wrecked to a point where it is nearly beyond repair .
All of this is done while you aren’t even earning a bit of equity on the home .
That is another problem with cheap mortgage loans like the interest only loan .
a person ends up missing out on the inherent benefits of accrued equity in the home .
Since the value of your home is also certainly going to increase over time, it makes plenty of sense to put your money into it .
After all, this is basically a can’t miss investment .
With a bit of equity built into the home, you also have a personal insurance policy should something terrible happen .
You could always borrow money against your equity to pay off a large bill or make another investment .
Other types of dangerous loans are longer term loans .
These are gimmick mortgage loans which allow the home buyer to stretch his or her term over 40 or 50 years instead of the standard 30 year term .
This makes the payment somewhat more affordable, but it costs a ton in interest payments .
When you make a half century commitment, you are really just committing to paying a ton of interest to the bank .
It makes no sense to put yourself in that situation, especially with the amount of uncertainty in today’s world .
Most home buyers don’t know what they are doing tomorrow, much less 50 years down the road .
How do these things impact the market on the whole? It simply weakens the borrowing base .
When that happens, just about everyone suffers .
People looking to sell their homes are left out to dry because there aren’t enough worthy buyers .
Home builders hurt because people can’t afford the inflated interest rates .
The market will ultimately suffer when these people can no longer afford to keep up their cheap mortgage loans .
When that happens, banks and lenders lose their profits, interest rates begin to rise, and the entire system collapses upon itself .
Though there are checks and balances in place to avoid a complete collapse, the slight loss of market productivity has long term negative consequences .
Smart borrowers will stick to the standard mortgage loans and leave the gimmicks at home .
There is nothing good about paying a ton of interest to the bank when that money could be put to a much better use .
Instead of sacrificing your long term financial foundation for smaller payments, try to think about your situation with a broader scope .
Securing a mortgage loan is part of securing your future .
Don’t waste it by falling for cheap offers.
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