For many people in the U.S, owning a home is a goal. However, not very many can afford to pay in cash and therefore they end up taking out a mortgage. It’s either that or stay in a rented apartment until one is able to afford a house. There must be a serious discussion in deciding whether or not taking out a mortgage is the right decision to make. In this article, we will help you first understand the downside of taking out a mortgage.
1. Debt - Obviously, by taking out a mortgage, you’re promising to pay back a large amount of money within a certain time period. You also have to pay for the interest which means after 25 years, you’ll be paying more than the amount you originally borrowed. There are also lenders who charge a high-interest rate compared to others. This situation is usually overlooked when you urgently require a loan which means you will have to pay a lot of money as interest.
2. Possibility of losing your home - If you can’t keep up with repayments, there’s a high chance that you will lose your home because a mortgage is a secured loan against your property.
3. Paying extra charges - You may also need to pay various fees in addition to the interest you pay. These fees such as legal fees, insurance fees, and others may seem unimportant in the beginning but if you add them to the principal amount and the interest to be paid back, they will come upon you as an extra burden when you actually start repaying. The amount can be surprising so make sure you’re aware of them before you make any commitments.
4. Constant changes and an increase in interest rates on mortgages - Although there’s a possibility for the rates to also decrease, you still need to get yourself ready against the possibility of them suddenly rising. This means you may end up paying more than you expected.
The interest rate in variable rate mortgage changes, for example, changes periodically unlike the fixed-rate mortgage. You will notice that the rate can be lesser compared to that of the fixed-rate mortgage which is one of the reasons why a lot of people get attracted to it. But the rate either goes up or down depending on the market interest rates at the end of the introductory period. The unpredictable change in rates will make you pay more interest.
5. Repossession or foreclosure of homes - Your home will be repossessed if you can’t make the repayments as a homeowner. It’s best to speak to the mortgage company as soon as possible if you think you are unable to keep up with the monthly payments on your home. There are companies that are understandable enough to help you although they’re very rare. The risk of losing your home is one of the downsides of taking out a mortgage.
6. Making payments - You may not feel the pressure the first few months of paying off the mortgage, but over the years, depending on your situation, it can get a little heavy to pay them off especially when you factor in the interest. This is why we strongly advise that you develop a good financial strategy to make sure you won’t bury yourself to debt in the coming years.
7. Your property’s value may decrease - The market fluctuates like crazy and whenever it does, it won’t notify you. The value of your property won’t remain the same forever. The rates in variable-rate mortgages tend to increase because of market fluctuations which may make you unable to pay the instalments due to lack of funds and eventually make lead to the foreclosure of your home. There is no way for you to know exactly when the value of your property will increase or decrease as well. This could mean you may lose money on the property if for whatever reason you choose to sell.
These disadvantages may sound a little scary but there are also a couple of advantages in taking out a mortgage such as its cost-effectiveness and in building a better credit score. Taking out a mortgage is a major life decision so be sure you understand everything about it. Consider consulting a financial advisor to help you take a closer look at the joys and pains of taking out mortgage loans and to have a higher chance of financial success in the future.
