4 Dangerous Mortgages Lenders Promote

If you are in the market to purchase a home and you need a mortgage, there are certain mortgages that will make your purchase the best investment you have ever made, but there are other types of mortgages lenders promote that are to be avoided.



Interest Only Mortgages have been around for a long time; for a short term loan, such as a construction loan while your property is being renovated, there is nothing wrong with them.However to get into a longer term mortgage where only the interest is being paid disallows for any value increase in the property.



Even the small amount of principal that is reduced during the early years of the loan are more beneficial than owing the entire amount after making payment on the interest alone.



Adjustable Rate Mortgage (ARM) with an Option that allows you to skip a monthly payment if you are short can be problematic The monthly payment that you missed is then added onto the back of the loan and you end up paying interest on your interest, since that is where most of the monthly payment goes to in the first few years.



Balloon Mortgages are dangerous for the simple reason that no contingency or arrangement can be made for the future that takes into consideration all of the problems inherent in nature of loans - primarily the economy, but more closer to home is the fact that such a loan requires a full payment at the end of the balloon term, often 5 years, at which time the borrower may not have the ability to secure fixed financing.



Piggyback Loans are used occasionally when the borrower does not have enough down payment and cannot afford the PMI (private mortgage insurance) required on a conventional loan with less than 20% down payment.



To make up the difference, a second loan is taken out that reduces the amount of the first.By reducing the first to an 80% LTV (loan to value) PMI would not be required. This type of loan caused many foreclosures during the most recent housing crises.



The more astute borrowers know these and many other details concerning mortgages and thereby prevent dangerous financial undertakings that for those less informed lead to catastrophe.