Mortgages « Laurie Blake .com

By: Laurie Blake  09-12-2011

Mortgages « Laurie Blake .com

Mortgage Options to Avoid

If you are about to sign on the dotted line for a mortgage, make sure you know a few things. Buying a house is a huge step, particularly if it’s a first home. Someone buying a house should remember that debt is the enemy. This instills in them a passion to pay off their home early.

There are some ridiculous mortgage options available. If you aren’t familiar with the options, take time to educate yourself about the different choices so you don’t make a mistake. No one wants their dream home to become their worst nightmare because they found out the hard way they couldn’t afford their house.

Here are four of the worst options available:

Adjustable Rate Mortgages (ARMs)
An ARM is a mortgage with an interest rate that changes based on market conditions. The intent is to transfer the risk of higher interest rates to you, and, in return, the lender gives a lower rate up front. This is a bad idea because you only pay interest. Since they can qualify for more home, many people find this mortgage appealing; however, as many homeowners learned in the economic downturn, if your rate adjusts higher or you lose your job, your payment can quickly become too much for you to afford. 

Reverse Mortgages
A reverse mortgage is when a homeowner borrows against the equity in their home and obtains monthly, tax-free payments from the lender. This mortgage is a bad idea because you are putting a paid-for home at risk, and the fees are horrible. In fact, the Federal Trade Commission claims that reverse mortgages have the most fraud in the mortgage business.

Accelerated/Bi-Weekly Payoff
The idea is to make a half-payment every two weeks, which comes out to 13 payments a year. You’re paying off your home early by making an extra payment each year. This is a good idea, but it’s a bad mortgage option. There’s no need to pay your lender a fee in order to make the extra payment. You can easily pay extra on your own without having the fee tacked on.

Tax Advantage
Technically this isn’t a mortgage option, but many people hang on to their mortgage instead of paying it off early. They’re convinced they will get a tax advantage. If you’re keeping your mortgage in order to get a tax cut, that’s just dumb. Don’t fall for that myth; the math just doesn’t add up.

Remember best option is a 15-year fixed-rate mortgage with a monthly payment of no more than 25% of your income.

With rates as low as they are these days, the fixed-rate mortgage is an incredible option.

Happy house hunting.

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