Five Mortgage Misconceptions

Five Common Mortgage Misconceptions, by Catherine Brock @ MortgageLoan

Outdated or misinterpreted advice on mortgage loans can cost you. Be a smart mortgage shopper by taking a closer look at the industry’s most common misconceptions.

A costly mortgage decision can have you feeling like Homer Simpson after being one-upped by Ned Flanders, and have you saying “Doh!” Keep your inner-Homer at peace by dispelling the most common myths about mortgages.

1. Adjustable-rate mortgages (ARMs) are dangerous:
ARMs are normally structured with a fixed introductory rate lasting three, five, seven or 10 years. The ‘dangerous’ part of the loan, during which the rate can increase, doesn’t kick in for several years. Given that the average buyer doesn’t keep a home longer than 10 years, your exposure to rate fluctuations may be minimal.

2. PMI is required if you don’t have a 20 percent down payment:
Buyers who don’t have the cash for a 20 percent down payment can avoid PMI by taking out two separate loans to buy the home. The first would be a mortgage covering 80 percent of the purchase price. The second loan, called a piggyback, will fund the remainder of the purchase price, less any down payment.

3. You should always pay off the mortgage early:
Rather than pay down your mortgage, consider sending that money to higher-interest debt, like credit cards and auto loans. If you have no other debt, compare your mortgage interest rate, adjusted for tax benefits, to the rate of return available to you by investing. If the investment return is higher, put your money there rather than paying down the mortgage early.

4. You can’t get a mortgage with problem credit:
Having credit problems doesn’t necessarily bar you from access to a mortgage. The severity of your credit troubles will largely determine the interest rate, because lenders use the rate to compensate for increased risk.

5. Refinancing restarts the 30-year clock:
You might be reluctant to refinance to a lower rate because you don’t want to start that 30-year mortgage clock all over again. Don’t worry—the lender will be happy to comply with your request for a shorter payment cycle.

Once you correct these common misconceptions, you’re ready to proceed on the mortgage hunt with confidence. As Ned Flanders would say, “Oh, golly, if that doesn’t put the shaz in shazam!”

———————————-
MortgageLoan.com is the premier mortgage resource for consumers, providing current mortgage rates and information since 1995. MortgageLoan.com provides consumers with tools such as mortgage calculators, and the ability to easily compare offers from competing lenders. In addition, MortgageLoan.com features one of the most extensive mortgage broker and lender directories, covering all states.
For current mortgage rates, see www.mortgageloan.com/Rates/.