Nowadays, there are many ways to get a larger house if you want one. Lenders are now making it much easier to get larger amounts of money for a mortgage. But the question is however, that whether it is this good practice, and is it safe or not?
There are several types of mortgages available and you will have to decide which one suits you best.
Interest Only Mortgage
Some mortgages allow you to buy a larger house without having an increase in your income. This is typically called the ARM category, or balloons. An interest only mortgage, is also in this category. Actually, an interest only option can be attached to any mortgage, not just to an ARM. Howsoever, the interest only option will lower initial payments, but they will be raised to compensate later, which could be a big jump.
This means that you could get into trouble unless there is a definite increase in your income. If you already have this type of mortgage, it is advisable that you start paying a small amount of the sum that you have to pay in the future in addition to your monthly payments in order to reduce some of the principal which will keep your payments down a little when the time for fully amortizing payments comes.
Balloon Mortgage
Balloon mortgage is another kind of mortgage that is taken by many people to get that larger dream house. A balloon mortgage works by calculating the payment on a 30-year basis. This gives you a lower fixed payment for typically either 3,5,7 or even 15 years. When this time period ends, the full payment will be due, or it will need to be refinanced at the current interest rate. This type of situation provides a generally lower payment for the fixed portion of the mortgage, but it can prove to be dangerous, if the interest rates are raised too high.
Problems with this arrangement
Although many people are going for such mortgage, and are getting their larger house, many are also getting into trouble with it. It could turn into a really good deal if the economy stays good. But due to the recent recession, it has become quite risky to take any chances about the future.
The economic downfall has caused many to lose their jobs. Industries are closing and companies are facing bankruptcy. The lenders are also cautious about who they lend to because too many are losing their beautiful homes now.
Playing Safe
the best option in this situation would be to play it safe, buy a house you can afford, and wait and see what the economy will do. This way, two things will happen at the same time. First, you will have the house, and have affordable payments. Secondly, you will be building up equity. Then, if the economy continues to do well, and your income increases – you can buy that larger house without nearly as much at stake.
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