Considering the myriad of options on the market, choosing the mortgage to apply for has never been harder. But even if every product out there seems to entice you, you must know that most of them don’t suit your situation.
Unless you do your due diligence, you might find more negatives than positives to these risky options:
No Money Down
Although 100% financing isn’t as popular these days as it was the years prior, some lenders may still let you borrow without any down payment. A zero down mortgage is convenient at first for you don’t have to pay anything much out of your pocket, but it categorically puts your loan at dire risk of becoming underwater.
Because you haven’t built equity on your property to start with, property depreciation and missed payments could quickly put you in an upside down position.
Neg-Am
Any upright mortgage lender in Utah would offer a loan with a negative amortization option. According to The Mortgage Partner Inc, it’s primarily designed for borrowers that couldn’t pay full payments regularly, as they only get paid seasonally. In this setup, you could just pay a portion of the interest to avoid default. The unpaid portion of the interest would then be added to the principal.
However, this financial product could likewise easily turn your mortgage upside down. If you’re not disciplined enough to make the standard payment after only paying the minimal balance, you would eventually find yourself deeply underwater.
Interest-Only
As the name suggests, an interest-only loan allows you to pay just the interest for a certain period. Without worrying the principal for a couple of years, your monthly repayments would definitely be low during this “honeymoon” period.
Problem is, the actual size of your debt doesn’t change throughout the interest-only period. Your initial payments would only cover the interest, leaving the principal completely untouched. As a result, the progress of your real loan repayments is delayed, and you’d be facing higher monthly payments down the road.
Home ownership is impossible to realize without a mortgage, but the wrong choice would make things worse. As it is possibly the biggest financial obligation you’d ever have in your life, do your research thoroughly right off the bat.