Saturday, September 13, 2008

Cheap Mortgage Loans Present More Problems For Market

Cheap mortgage loan offers are hurting people financially for the long term and they don???t even realize it. Though this might sound like a good solution on the surface, it has created problems for borrowers and the entire market. They want to entice people to get a mortgage loan with a significantly lower payment.

What has their solution of choice been? In short, banks are tightening up their standards and are having trouble finding lenders to take on the high payments associated with top notch interest rates. With the real estate market in a real funk, there have been many short term solutions attempted by lenders to gain more business.


You can bet that the ups are the aspects of the loans that are being presented to potential borrowers at the onset of the process. There are a number of different names given to these mortgage loans and each one has its own ups and downs. You can bet that something is up.

There are a number of different names given to these mortgage loans and each one has its own ups and downs. You can bet that something is up. There are a number of different names given to these mortgage loans and each one has its own ups and downs. You can bet that something is up.

There are a number of different names given to these mortgage loans and each one has its own ups and downs. loan or a loan with no down payment, then you can bet that something is up. If you ever hear any lender discussing an ???interest only??? They are presented in nice names that make people believe that they are getting a deal.

What are these cheap mortgage loans that have become so popular?


The problem with these loans is that they get people no closer to owning a home as they would be if they were renting a home. Unlike with renting, they have a huge loan on their back, though. That huge loan is just sitting there and all the person is paying is the interest. It might sound good on the surface by decreasing the payment substantially, but it weakens a person???s long term financial prospectus a great deal. The only person who benefits from such a deal is the banker.

With these mortgage loans, a person can put themselves in significant danger and at great risk. What happens if you lose your job or something unexpected happens? Then, you are saddled with a loan that is too big for your bank account. In this case, foreclosure is eminent and your family will be left without a home. Beyond that, your credit will be wrecked to a point where it is nearly beyond repair. All of this is done while you aren???t even earning a bit of equity on the home.

That is another problem with cheap mortgage loans like the interest only loan. A person ends up missing out on the inherent benefits of accrued equity in the home. Since the value of your home is also certainly going to increase over time, it makes plenty of sense to put your money into it. After all, this is basically a can???t miss investment. With a bit of equity built into the home, you also have a personal insurance policy should something terrible happen. You could always borrow money against your equity to pay off a large bill or make another investment.

Other types of dangerous loans are longer term loans. These are gimmick mortgage loans which allow the home buyer to stretch his or her term over 40 or 50 years instead of the standard 30 year term. This makes the payment somewhat more affordable, but it costs a ton in interest payments. When you make a half century commitment, you are really just committing to paying a ton of interest to the bank. It makes no sense to put yourself in that situation, especially with the amount of uncertainty in today???s world. Most home buyers don???t know what they are doing tomorrow, much less 50 years down the road.

Though there are checks and balances in place to avoid a complete collapse, the slight loss of market productivity has long term negative consequences. When that happens, banks and lenders lose their profits, interest rates begin to rise, and the entire system collapses upon itself. The market will ultimately suffer when these people can no longer afford to keep up their cheap mortgage loans. Home builders hurt because people can???t afford the inflated interest rates.

People looking to sell their homes are left out to dry because there aren???t enough worthy buyers. When that happens, just about everyone suffers. It simply weakens the borrowing base. How do these things impact the market on the whole?


Don???t waste it by falling for cheap offers. Securing a mortgage loan is part of securing your future. Instead of sacrificing your long term financial foundation for smaller payments, try to think about your situation with a broader scope. There is nothing good about paying a ton of interest to the bank when that money could be put to a much better use.

Smart borrowers will stick to the standard mortgage loans and leave the gimmicks at home.



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