How Could Have I Ended Up With Bad Mortgage?

02/21/2010

bad mortgageSometimes, even with a well laid-out plan on how you will settle your mortgage, something beyond your control happens which jeopardizes all your good resolve. On the other hand, a lot of people apply for loans even they know that the repayments are beyond their paying capacity, and still others like to live dangerously and take out loans which payment leave them very little margin even for their regular expenditures.Below are some instances wherein your mortgage can become a source of your financial tragedy:

1)  Mortgage hardly leaves you anything for your normal expenses. If 85% of your expenses consist of payment for mortgage, then you have fallen prey to a stretch income. If you got a fairly good deal on your mortgage and enjoying a good rate already, then there is nothing much you can do to improve it further and your repayment scheme will remain to be high and may even go higher if the interest rates go up.  When applying for mortgage, you should take into consideration contingencies and how much money will be left with you for basic expenses.

2) Rising interest rate will render your income almost useless.  If you find yourself hardly able to meet your mortgage responsibilities because of escalating interest rates, then perhaps you should already start looking at other options such as remortgaging. That is why it is not practical to take out a loan based on maximized income limits because if the interest rate increases in 2-3 years time, you can kiss your originally excellent terms goodbye.

3) Unexpected events such as sickness, loss of employment and injuries due to accident can temporarily cripple you financially especially if you are not covered by any protection such as an insurance coverage. If such is the case, you will have to deal with several problems all at the same time.

The mortgage which has enticed you at 5% may now come to a higher interest rate so the loan amount you should apply for should take the escalating interest rates into consideration and factor it in when deciding how much repayment you could really afford. Many individuals start out as good payers until they are derailed by mounting interest rates and end up in arrears and destroyed credit.

Mortgages are like any product, they are packaged to entice the client to pick them. It is important to read and understand the fine prints prior to filling out the application form. Look out for hidden charges and penalties to offset the excessively low interest rates; otherwise you will not see that hiding behind that attractive 5.29% interest rates are charges amount to over $3000 – $8000.

Mortgages that started out good can end up bad so be ready with a contingency plan, save up for bad days so you can make good on your repayments and avoid and sinking in a pile of mounting bad debts.

About the Author: NVA Admin