For many people, a mortgage is the only chance to buy housing. The cost of real estate is quite high and not everyone has the opportunity to save up for an apartment. A mortgage in this case will allow you to purchase your own housing and pay for it for several decades.
Mortgage is one of the common services offered by banking institutions. It is a type of loan implying a system of long-term loan contributions. A feature of a mortgage loan is the issuance of money for the purchase of housing with a maturity of up to 30 years.
Mortgage programs are not an innovation in the US real estate and lending market. The advantages of mortgage lending make this type of loan popular among the population, but there are a number of nuances that you should know before making such an important decision as a mortgage.
The advantages of mortgage
Mortgage lending has a number of rather significant advantages.
- The first and most basic advantage is the possibility of acquiring an apartment or a private house without having the necessary amount on hand. For those who do not want to rent a house or live with parents, a mortgage loan is the only option when it is not possible to get the entire amount right away. With the help of a mortgage, you can get your own apartment and live there, paying a mortgage fee every month;
- Getting a mortgage, the borrower becomes a kind of investor. The value of real estate in the market is growing every year. You will close the loan ahead of schedule and then you can sell the apartment at a higher cost, while gaining a decent amount. Moreover, it is not necessary to repay a mortgage early, you can close debts exactly on time. The possibility of selling at a higher cost will still exist;
- You can do any repairs in the mortgage apartment, everything what is permitted and legal;
- There are various government support programs: military mortgages, young family mortgages, mortgages with state support, etc. They allow you to get a loan on beneficial terms and significantly save on interest;
- Those who do not fall under the above categories of citizens can take advantage of tax deductions. Any borrower after the end of loan payments or every year can apply for a tax deduction, both for the amount of the principal debt and for the interest paid (interest return on the mortgage). You can also repay the mortgage using the program to help mortgage borrowers;
- You become the owner of the housing immediately after the execution of the mortgage transaction. You have the right to live on the acquired housing, rent it out. The only thing that you cannot do with mortgage real estate is to sell, exchange or bequeath it. All this becomes available only after the full repayment of the mortgage;
- Mortgage product implies the possibility of refinancing. The borrower has the right to switch to another bank with lower rates;
- Almost all banks offer a service such as early mortgage repayment. If you have the possibility and money, then the loan can be repaid ahead of schedule, while interest will be reduced;
- A mortgage is given for a long period, so the amount of the monthly payment may not be so burdensome, which allows you not to experience serious financial difficulties;
- Before issuing a mortgage, the bank carefully checks the selected housing in all respects. The borrower can be sure of the legal purity of the transaction and the housing itself. But in some cases, a mortgage may not be approved. The bank has a number of requirements for real estate. The house must have individual or central heating and water. Housing should not be seized or otherwise sanctioned. Otherwise, the bank will refuse to approve the application.
These were the advantages of mortgage lending, and they are quite impressive. But before signing the contract, the borrower should know that there are also disadvantages of mortgage lending.
The disadvantages of mortgage
Cons of mortgages can dramatically change the decision of the borrower to request this kind of loan.
The disadvantages of mortgage lending include:
- Huge overpayment. If the property is taken for a long time, the amount of overpayment may be equal to two, or even three, housing costs;
- When applying for a mortgage loan, the borrower pays not only the down payment, there are also other expenses, for example, mortgage insurance, which ultimately amounts to a considerable amount, sometimes reaching up to 10% of the cost of housing;
- The acquired real estate serves as a pledge at the bank in case the borrower ceases to pay on the debt. If this happens, the bank simply takes the living space and sells it to repay the remaining loan amount. Therefore, there is always a chance to lose property in case of non-payment;
- The living space taken in a mortgage cannot be sold and exchanged until all the debt has been paid;
- The bank has strict requirements not only for real estate, but also for the borrower. He or she passes a bank audit, collects a lot of documents, including a proof of income. The main reasons for refusal are poor credit history and low wages;
- The initial payment may be a hitch since not everyone has the opportunity to save even 15-30% of the housing cost.
This is not the entire list of all the disadvantages of a mortgage. A moral obligation sometimes leads to psychological discomfort and a sense of constant debt to the bank.
To take or not to take?
Since the mortgage has both its pros and cons, you should know the situations when this option will be really reasonable and profitable and when you’d better refuse it.
If you are responsible and realize that every month you need to give part of your personal income and you are ready for this, then you can apply for a mortgage. For non-serious people, this option is definitely not suitable.
Sometimes it’s difficult to accumulate the necessary amount, money depreciates, the value of real estate grows. And not everyone knows how to save when there are so many temptations and advertisements around. It’s sometimes easier for a person with a stable good income to get a loan and pay a large amount every month. Then the mortgage will be paid off faster and you can move to your own home immediately after applying for it. And paying rent for housing and at the same time saving up for your own house is very difficult.
Each borrower must understand what a mortgage for him/her. For some people, it’s a “bondage for life” but for someone it’s a good chance to buy their own home. In both cases, you must first study the advantages and disadvantages of mortgage lending, choose a suitable bank and carefully read the terms of the contract by reading the letters in small print and footnotes. Only after that you can make a decision.