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Top Five Myths about Mortgages that can Damage Your Pocket


By Sadiya Anjum

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The lesser you know about a subject, higher the chances of believing any information that is thrown around. This seems to be the case with many people when it comes to Mortgages. Myths keep circulating and in the case of mortgages, believing myths could hamper you from benefiting from a good offer or actually cause you to suffer financial loss. Here are a few myths, perhaps born out of people’s ignorance or skepticism, but that is all they are – myths.

Poor Credit means no Mortgage

Despite the aggressive marketing, some people are still blissfully unaware of sub-prime loans or bad credit mortgages. They think that having a poor credit means that there is no way they will be able to obtain a mortgage to buy a home. Today’s lenders are trying to expand their spectrums and make mortgage availability accessible to as many people as possible. This is how sub-prime loans were born. These mortgages are specially designed for people who have bad credit history. The conditions maybe slightly demanding but many people out there are already availing from sub-prime loans and surviving just fine.

Private Mortgage Insurance is the only way out if the down payment is below 20%

Today people are getting 100% financing but it comes with a price called Private Mortgage Insurance (PMI). But it is not the only way to obtain maximum financing. If you can put down even 10% or 5% then there is a way out in the form of ‘piggyback mortgages’. This mortgage basically means you split up your loan into two portions – ‘80-10-10’ or ‘80-15-5’. The last number indicates your down payment and the first two will be two different loans. Since you are not exceeding your 80% limit, PMI is not mandatory.

Interest Rates are too high to lock them today

Interest rates fluctuate every single day and you are waiting for them to drop. No one not even an expert can completely predict the market. Waiting for the most opportune moment to lock in your rates can sometimes be foolish especially if the rates keep increasing. Lock your interest rates when they are not as drastically different from before. When the rates do come down, you can always consider refinancing. So until then you can benefit from the low rates today than suffering the higher ones tomorrow.

Refinancing is not worth it since interest is paid up front

It is true that the first few years of your mortgage, the larger percentage of your payments will go towards your interest. So if you have paid so much interest already why refinance and restart? Maybe because you can save your self several thousand dollars. Interest is not calculated on the original principal every month instead it is calculated on the outstanding principal amount. This makes all the difference in the world. If you refinance with a lower interest rate and continue to pay the same amount each month, then you will save yourself money which would have otherwise been interest and even pay off your loan sooner. If planning to refinance, it is the interest rates that should be considered.

Always pay off mortgage as soon as possible

Being debt free may be a dream come true and making your home completely your own by paying off its mortgage early is the best way to go. It is not a bad idea to pay off early but it is not the only good idea either. Thinking outside the box can help you make more money than what you will save in interest payment by paying off your loan sooner. The money you save by not making the extra payments can actually be invested where higher returns are possible. By sticking to the original mortgage term, you will receive huge tax benefits which save you more money that can be invested smartly.

Article Source: ChoiceOfHomes.com - Real Estate Listings Online

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