Many people rush through the mortgage process only to make costly mistakes that stay with them over a lifetime. They take on huge or unfriendly mortgages, leaving them miserable.
Buying a home is a tricky financial undertaking that requires you to tread carefully. If you’re not sure how to go about the entire process, don’t hesitate to seek expert counsel from a mortgage company in Naples. Consulting a seasoned expert can keep you from making mistakes that can ruin your finances.
Stretching the repayment period
It’s common for first-time homebuyers to get hung up on a beautiful house on the hills, one that is way above their budget. Such homes carry premium prices, forcing you to take out a jumbo loan. To keep the monthly repayments on such a mortgage affordable, most people opt for an extended loan up to 40 years.
Unfortunately, such loans carry a higher interest rate than the shorter loan plans. For instance, you were to take out a $200,000 mortgage payable over 40 years at an interest rate of 5.8 percent. At $283,394, the total interest payable over the life of the loan would surpass the principal amount. The house would end up costing a staggering $483,394.
In contrast, a similar loan with a repayment period of 30 years at an interest of 5.2 percent would carry $175,823 in interest. While that is almost double the principle, an interesting twist comes to light. The difference in the monthly payment on the 30 and 40-year plans due to a 0.6 percent difference in interest is a paltry $23.
However, the longer loan will end up costing you an extra $107,570 of your hard-earned money. Taking out an extended mortgage plan can leave you broke. It can cripple your ability to put your kids through college and force you to keep working past retirement.
Settling for an interest-only loan
Such home loans are tempting because they carry smaller monthly payments for the first five or ten years. One of the most significant drawbacks of an interest-only loan is that you will have a relatively shorter time to pay back the loan. The mortgage payments are initially smaller because you’re not paying back the loan.
Once the grace period expires, you will be saddled with higher monthly payments for the remaining years. Unless you’re sure of the prospects of growing your income in the future, you might have trouble keeping current with the payments. One other major disadvantage is that you’ll have built little or no equity in the home, which makes it tricky to refinance.
You need a certain level of financial discipline to use such a loan plan successfully. Interest-only loans carry a higher interest rate, and this will end up costing you more money. In the case of a market downturn, you can’t sell the house since you have little or no equity in it.
In the end, seeking expert help can help you avoid critical mistakes. Taking on a huge mortgage can force you to have a miserable life.