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Understand your mortgage before you sign
If you are currently shopping for a mortgage you know that there are many options available out there.
Other than the traditional 30-year fixed-rate mortgage, there are tons of other mortgage options available. There are a variety of terms available, and some may seem too good to be true. If this is the case, then you’re probably right; they are too good to be true.
With thousands of lenders out there, choosing a mortgage can become a very tricky and confusing process trying to weed through the people who are genuine and those trying to swindle you.
Before you choose a mortgage, be careful to read through everything, especially on new popular mortgages that offer unbelievably low introductory rates and monthly payments.
The article, “Read the fine print on popular mortgages,” by Gail Liberman and Alan Lavine of The Wall Street Journal’s Marketwatch, gives some helpful tips for deciding on a mortgage.
“Are you enticed by the low monthly payments of adjustable-rate and interest-only mortgages? Don't rush in. Always determine your monthly payments under the worst-case scenario before signing on the dotted line.”
The latest craze is interest only mortgages, where the only thing you pay every month is the interest for the first few years. Then your payment “balloons” and you are required to pay both the interest and the principal.
This could leave you with enormous monthly payments that can be virtually impossible to meet, resulting in defaults and foreclosures.
“Even if you don't opt for interest-only payments on your mortgage, you could be faced with a growing balance. Take the most heavily advertised "Option ARM," named for its various payment options. If you make its minimum monthly payment of 1%, you'll definitely owe significantly more than you borrowed after the first year alone -- even if interest rates stay the same or drop. Such loans are called negative-amortization mortgages.”
Everyone is hoping that the housing market will begin to pick up or else a lot of people could be in some serious trouble. The main worry is people will start owing more on their mortgages than their home is worth.
When shopping for a mortgage there are a few important things you should keep in mind: “Does a mortgage have a longer term than the typical 30 years? Despite attractively lower monthly payments, expect to pay more interest over time than you would with a traditional 30-year term. If an adjustable-rate mortgage has an unusually low teaser rate, your rate could rise even if interest rates drop. In one ad we saw, the 1% advertised rate was effective for exactly one month. The more frequent the interest-rate adjustment, the faster interest may accumulate if rates rise. Make certain your lender defines the lifetime rate cap on an adjustable rate mortgage.”
These are not the only things you need to keep in mind when dealing with your mortgage. Always remember to look at the bold print, because the “small” print can be very misleading.