Advantages & Disadvantages of a Mortgage
Everyone dreams of buying a home one day but for most of us there won’t be a one day while for a few of us, there will be a one day.
Thanks to mortgage financing through banks, other financial institutions and real estates that provides mortgage services, buying a home now seem possible for us.
Due to the rising prices of houses located in different regions of the country, a lot of people could not afford to buy a house due to the rise in our cost of living which in turn affects our expenses level.
But mortgage or the home loan has made it easier to raise a family even while fulfilling your mortgage payment plans.
For example, people who wish to live on the island can apply for a mortgage plan which will in turn make it easy to pay their monthly mortgage payments to cover their home loan.
However, you need to understand that there may also be some associated disadvantages to mortgages.
Let’s take a look at some of the advantages and disadvantages of mortgage financing.
Advantages of a Mortgage Loan
1. It makes having a home affordable and possible
It is possible and affordable to own a home through a mortgage plan because you can spread the loan repayments over many years, therefore the amount you will have to pay back each month becomes more affordable, possible and easy to pay.
2. Pay Back Period is pocket friendly
Amazingly, you will have to choose the payment period yourself from the available options.
There are actually no set rules about how many years of mortgage payment plan we can choose, but as the retirement age increases more people choose the 30-year mortgages.
According to tradition, people take out their first mortgage for a term of 25 years.
The more the years, the lower the payment you will have to pay per month since payments will be spread over a long period of time.
On the other hand, you will have to bear the mortgage debt for a longer period.
You can tailor your payment plans to suit your capability.
The smartest thing to do in this situation is to find a short home loan that you can afford. In this way, you will be able to free yourself earlier and you will not have to pay thousands of naira or dollars as interest.
3. Mortgage is a cost effective way of borrowing
On like any other type of loan, Mortgage interest rates are lower because the loan is secured against your property.
It means that if something goes wrong and you cannot return it in time, the bank can redeem your property.
Disadvantages of a Mortgage Loan
One of the obvious disadvantage is that you may lose your home if you default in the repayments of your debts
The biggest drawback is that since the loan is secured on your property, you will have to keep up with your mortgage payments or you could lose your home.
Lenders work very hard to keep up with payments. But if the owners really can’t make the repayments, their home will be repossessed. The bank will sell the property to get your money back.
You will bear the debt for a long period of time
There is a very high tendency that the debt will last years before it can be paid in full. When you are meant to pay $4,000 within 25 years, you may end up paying $5,000 and this will increase the number of years to 30 years or more depending on the monthly plan.
Due to the interest rate, you tend to pay more than the original price on the long run.
The total cost of having a mortgaged property is Cost + Premium/interest.
This mean that there are additional charges attached to the cost of the house which serve as interest or which is calculated using an interest rate.
This interest if then added to the normal cost price in which you would pay if you are not buying the mortgaged property on a mortgage term is a disadvantage.
The owners have to pay much more than they expected. Due to the interest rate added to the payment, homeowners end up paying much more than the original price.
Extra fees can be attached
There is also the cost of transportation. The transfer cost is the legal work that is required when taking out a mortgage. You also have to be careful about penalty fees if you need to get out of your mortgage deal early.
Thank you for your time.
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