Today I logged onto my computer and was caught by a pop-up advertising a $350,000 mortgage for $999 a month. WOW! Normally, I shake my head and close them out. Or, when I see the advertisements on T.V., I change the channel. I had a reality check the other day when my finance' commented in response to one of these low payment commercials. He said, chucklin, "Honey, we should call them!"...of course he was joking, but I realized that most consumers don't know what we in the business know.
In our local Tampa Bay market, we have high home prices and many consumers are looking for ways to finance their dream homes. For some consumers, these mortgage advertisements, like the one I saw today, may entice some home buyers. The trouble is the mortgages that come with these low payments can be dangerous.
In most cases, these very low mortgage payments come with interest only mortgages or negative amortization mortgages. Negative amortization explained simply means that each monthly payment only covers a portion of the interest due. The unpaid interest is added back on to the principle balance thus increasing monthly the amount due and furthermore the interest payment each month. These negative amortization loans have resulted in many of the mortgage foreclosures we are seeing in today's market.
When a consumer is looking at purchasing or refinancing a home and looking for a low monthly payment, they must be careful because there are many loans out there that are not for everyone. Typically, if a homeowner expects to stay in their home for over 10 years and have stable monthly income, their best option is a fixed rate mortgage. ARM loans can be a good fit for consumers who will only be in their homes for a couple of years and or expect a higher income in the near future. Interest only loans could be a financing option for consumers who make large income in commission, although the income may come in more infrequently. These consumers can then plug additional income onto their mortgage while making the interest only payment monthly. (Disclaimer: It is a complex financial process determining which loan fits for a consumers financial future. These are not the only options, nor am I saying this is the outline one should use for finding a mortgage, these are just basic examples.)
The key point is consumers should understand there are hundreds and hundreds of mortgage options available and only a trained and experienced professional should advise you on your best options. Be careful with advertisements that sound too good to be true, they may be the start of a slipperty slope.
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My favorite advice to everyone if it sounds to good to be true it probably is buyer beware.