If you are in the market to lower your monthly mortgage payment there are many types of loans to pick from. As a homeowner you need to educate yourself about mortgages or you could lose a lot of money.
For starters, beware the so called “option” mortgages. These are loans that give you the “option” of paying less interest than is due each month. This will lower your monthly payment; however, the interest you don’t pay is tacked on to the principal loan amount. This creates a phenomenon called “negative amortization.” Instead of paying down the balance on your home it keeps growing over time. Defeats the purpose of owning your home, doesn’t it?
The other shortcut to lower payments many homeowners take is the adjustable interest rate. Adjustable rate mortgages aren’t a bad thing; when interest rates are low they are a savvy way to purchase a home. The problem comes when you don’t stay on top of the market and interest rates rise the way they have for the past six months. This causes your monthly payments to rise unexpectedly and can cause serious cash flow problems for your family.
Another pitfall you could encounter with your mortgage is the fee and penalty charged to refinance the loan. Many mortgages come with prepayment penalties if the loan is refinanced during the first three years. If you choose a risky option or interest only mortgage and interest rates spike driving your payments up, it could be expensive or even impossible to refinance when you need to. The worse case scenario here is you could be unable to refinance, unable to keep your payments up, and end up losing your home.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
