Top 3 Benefits and Risks of Mortgage. Image Courtesy – https://expertbeacon.com
Do you want to buy the home of your dream but don’t have enough money in hand? Well, in that case, a mortgage can be your ultimate saviour. It’s a kind of a loan that is secured by real estate that you are going to purchase, for example, a home. You may consider most mortgages as long-term investments. This makes it all the more important for you to know about all the positives as well as negatives of having a mortgage. This way, it will be easier for you to decide whether a mortgage is suitable for your financial situation or not.
First, let’s tell you what benefits mortgages offer –
Pot of gold:
Hoping for a pot of gold at the end of the rainbow? It is, of course, possible that many years from now when your home loan is finally paid off, it will be worth much more than your actual buying price. This means, your sweet home will become a valuable asset that you can either sell for a large amount of profit or leave for your kids to inherit.
Leverage:
The resulting leverage is one of the main benefits of a mortgage. Suppose, you have bought a $600,000 home, with a down payment of $100,000 and a loan of $500,000. In one year, if the home appreciates 10%, you can make a 50% profit on your investment. Leverage lets you make money out of the bank’s loan to you.
Tax break:
Have you ever thought that your mortgage can work in your favour by making you eligible for the biggest tax break? Well, it’s true! Basically, you can lower the amount of interest that you pay on a mortgage. And this becomes especially crucial during the first few years of the loan. This is the time when most of your monthly payment consists of interest.
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But, as there are two sides to every coin, read below some risks that are associated with mortgage –
Change in the interest rates:
Interest rates are most likely to change. And if the interest rate increases, your mortgage payment will also increase.
Early mortgage repayment:
This applies to only repayment mortgages. Have you saved up a large amount of money and want to pay off the entire amount of your mortgage? Be careful! Because there are many lenders out there who apply penalties for early repayment of the mortgage. So before you apply for a mortgage, make sure to find out if they charge for early repayment.
Crashing market:
You have to pay the entire amount of money that you have borrowed, even if the value of your property drops by any chance. This way, you may end up paying a lot more than the actual worth of your property.
Getting a mortgage is a complex process. So, before you opt for one, it’s important that you research very well and know all the positive as well as negative sides of it. This article is to help you know mortgage better. Hope it helps!
