Risky Mortgage Loans to Avoid
There are many types of mortgage options to choose from, but there are mortgage loans that you should be somewhat leery of obtaining. Here are the top 3 mortgage options that are riskier than other types of loans and you may want to stay away from them.
Interest Only Mortgages
Interest only mortgages only require that you pay the interest portion of your mortgage each month. Principal payments are not required. This mortgage option has given buyers, in the recent expensive housing market, the ability to buy a more expensive home than they would normally be able to afford. The bad news about these interest only mortgages is that after the interest only period, the mortgage becomes a fully amortizing mortgage based on the remaining balance of the loan, which means that your monthly mortgage payments can change significantly.
Multiple Choice Mortgages
These types of mortgages allow borrowers to get a very low introductory interest rate. These mortgages also allow borrowers to choose from four different payment options. One of the options, which is the one that requires the smallest monthly payment, is so small that it does not even cover the monthly interest that is due on the mortgage, which means that the borrower finds themselves owing more on their mortgage than the home is worth by the end of the mortgage (find themselves upside down on their mortgage).
Adjustable Rate Mortgages Because the interest rate environment can, and in many instances, does change on a daily basis, so can the rates on an adjustable rate mortgage. Even though these types of mortgages usually have a lower interest rate than a fixed rate mortgage option, the rate can continue to rise to the point that you can no longer afford the monthly mortgage payments. This is especially true for individuals that are on a fixed income or have bought a house that they really cannot afford, except for the fact that the low initial interest rate enabled them to make the monthly payments starting off.
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