Avoid Three Types of High Risk Mortgages

There is availability of many of the high risk mortgages in the market that you must shun by all means. A high risk mortgage offers you a prospect that seems quite alluring initially. However, when you scrutinize its nitty gritty, you won’t find it as attractive as it seems.

Just out of the blue, you will find yourself in a very high risk situation. In that case, you should adopt every known strategy to avoid a high risk mortgage. Below are given few kinds of high risk mortgage that you should avoid at all costs

Interest-Only Loans

Undoubtedly, one of the most risky types of loans is the interest-only loan. With the availability of this type of arrangement, you will often be lured by the more reasonably priced mortgage payment every month. Since you will pay loan only on the mortgage, hence the payment is reduced every month throughout the life span of loan.

Though it seems a nice prospect to make a lower payment, but you will be baffled at the end of the mortgage term. You will then be liable to pay the entire loan amount. For instance, if you got a mortgage for the amount of $200,000; you can easily pay the mortgage devotedly for 30 years. At the end of mortgage; you have to pay the sum of $200,000 all at once. If you fail to do so, then the house belongs to the bank.

In addition to that, you will not be able to raise any equity during the mortgage period. To build equity is one of the prime reasons to purchase a house else renting a house is a better option. You can well imagine that this type of mortgage is not a fair proposition for you.

Adjustable Rate Mortgages

Another type of high-risk mortgage is an adjustable rate mortgage. With this type of mortgage, you don’t have a fixed monthly payment at some point of time. Your interest rate is rather allied to a certain index; such as the prime rate currently in the industry.

Some how, an adjustable rate mortgage attracts many of the people, as initially they have to make a lesser payment. For a definite time period, you will have to pay a fix rate on the mortgage. For instance, you have five years of a fixed rate followed by an adjustable rate period. Hence, for five years, you garner the benefits and after that you are suddenly at the risk of market.

A large number of people who have availed this type of mortgage over the years came to know that their payments have doubled over the time. For that reason, most of them could not pay for their mortgage, if these were extensively higher than what they are paying now. This is exactly the situation that you may be entrapped with an adjustable rate.

50 Years Mortgage

This type of loan is pretty much similar to the interest-only loan, because you make your equity very slowly. It is somewhat better than interest-only, but not that much. A large number of people choose this type of mortgage in order to get a bigger house. End of the day, they have to overextend their budgets.

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