Hidden Costs of ‘affordable’ home loans

affordable’ home loans

People who want to buy their first home may be tempted to take cheap home loans. For the uninformed, a so-called bargain may evolve into a fiscal disaster. A bargain is only worthwhile if both parties get what they want. It’s not a bargain if the mortgagor goes bankrupt. This article will examine these bargain basement mortgages, and why the lender is willing to give them.

Interest Only Loans

Mortgages consist of principal and interest, and will be paid over an agreed time, either 20 or 30 years. Some loans have a grace period, where the borrower only has to pay for the interest. Cynics call this a “Honeymoon Loan.” This helps new homeowners gain time to build income. Like any honeymoon, it demands care and attention if both parties want to be happy. Some borrowers get used to lower payments and neglect to plan for the future. They become complacent and think this will last forever. It’s a shock to realize that the honeymoon is over. The payments will increase, but t people who pay attention to the repayment schedule will not be caught short.

Hidden Fees and Expenses

Mortgage lenders have one goal, to increase their income. They use fees and costs to support low rate loans. These give them the financial tools to offer reduced rates or generous payment schedules. Low-interest loans are founded on high fees. It’s the land of prohibitive rates:  application, servicing, and restructuring.

How to Find a Genuine Bargain

“Caveat Emptor” is a cliché, but like all clichés, it is based on experience. People should be careful and think before they act. With home loans, it is best to start with research. Get a clear picture of finances, as well as the costs of any loan, whether cheap or expensive. Know all the terms and conditions, then apply them to income. Plug in the numbers and see if they work.

The Australian government has several websites on property loans. They contain helpful articles on mortgages from application to repayment. There are worksheets to help calculate whether a loan is affordable or not. They also have links to current interest rates.

Financial magazines and newspapers contain helpful articles and information. It gives consumers a better grasp of the property loan industry. Look for information about a potential lender—have they ever been penalized for fraud or misconduct? Do they have an excellent reputation? Use data to support a decision.

If You Buy Cheap…

Grandmothers always said, “If you buy cheap, you get cheap.” That nine-dollar shirt on the internet looks attractive, but if it falls apart in the washing machine, it wasn’t a good deal. Bargain property loans are like that cheap shirt—poorly constructed, but designed to lure the unwary buyer. People who do their homework about the mortgage industry, the interest rates, and various lenders are going to get a fair mortgage. Those who take the first loan without comparing it to other deals will regret it.

Levvin Coffey
Content Concord is the writer behind belfieldrealestate.com, a blog focused on real-estate. She is a professional writer specializing in real-estate, business Investing and many other intellectual fields.

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