What are the risks involved with taking mortgages

Before you accept a mortgage loan, educate yourself on the risks you may be undertaking so you can decide whether or not to go on with the plan. Take a look at some of the few risks involved in taking mortgages

The interest rates to your mortgage payments will change overtime. If you take a fixed rate payment plan, your monthly interest rates will not change for about two year, when the fixed rate payment expires, the lender transfers you into a variable rate payment method. With whatever method of payment you chose for your mortgages, the interest rates are bound to increase over time.

You risk affordability of the loan in case your income changes. If you lose your job, mortgage policies will still remain the same. This means you will pay the monthly changes as per the contract you signed.  The mortgage dealers will still hold you liable to hold up the payment contract even with such a valid excuse.  You risk losing your home to the lenders. You can avoid this by making sure you keep emergency money in a locked savings account.

When you take on an interest –only mortgage payment method, the lender charges you interest on the mortgage for five to ten years. The deal is attractive to most borrowers because it reduces the carrying costs. What most people don’t realise is that the interest rates tend to be higher than all other payment methods. This methods costs you more interest than you need to pay towards the house

Some companies impose prepayment policies. These are policies meant to charge you a percentage of the interest when you make early payments. This policy is put in place to prevent lenders from losing out on interest rates when you make these payments .Most lenders do not disclose this information to their clients until they make the first early payment. Ensure you are familiar with the lender’s policies before signing off any contracts.

When the market crashes, your house becomes a negative equity. This is when the current market value of your home is less than your mortgage debt. Your house depreciates in value and by paying off the mortgage loan you are at a loss.  Negative equity will pose a real problem when you try to re-mortgage the home in future. You will be forced to sell off the property at a loss

You risk losing everything when you can’t afford to pay all the monthly instalments.. If anything happens and you can no-longer keep up with the monthly payments, you lender will take your title deed as collateral damage. This means you will lose your home and all the payments you made towards the house may go to waste. The lenders will get to keep everything including the down payment and you will end up homeless

Generally, lenders have most of the control when it comes to mortgage and mortgage payments. Read through all risks carefully and ensure you make the right choices before taking up a mortgage