Mistakes you’ll never make again if you know these pros and cons of a mortgage!

Mistakes you'll never make again if you know these pros and cons of a mortgage!

Mistakes you’ll never make again if you know these pros and cons of a mortgage

With property rates increasing steadily, it is difficult to build a house with your own money until and unless you are reasonably rich. In that case, you will possibly think about getting an upfront payment by mortgaging your property.

How does it work?

You need enough cash to build your own house. In case you do not have that, you borrow money from a bank and in return, the bank considers your property as security. If you repay the entire amount with the interest through monthly instalments, you claim ownership of the house by the end of the tenure, and, god forbid, if you fail to repay the full amount with the interest, “in the end it (your asset) doesn’t even matter.” In other words, the bank takes hold of your property and uses it in whatever way it finds fit to clear your debts.

If you already have an existing property, you can mortgage it to finance emergencies like investing in your dream project, supporting your child’s higher education, or getting your son/daughter married.

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Advantages of a mortgage:

You have the expanse of many years to clear your mortgage debts. Some banks even offer you a tenure of 30 years. Owing to this factor, the monthly payment along with the interest is affordable and does not leave you financially depleted. However, it is wiser if you do not elongate the tenure because the longer the term is the more interest you need to pay. Therefore, depending on your income if you think you can clear the debt within 15 years, do so.

         

A reverse mortgage scheme offered by certain banks in India could prove to be a great deal, especially for senior citizens. Here an elderly person mortgages out his/her property to a bank or Housing Finance Company (HFC) and in return, he/she acquires a monthly payment against the property. The best thing about a reverse mortgage is that, despite using the property commercially, the bank or the HFC allows the owner to stay in the house.

The interest rates are usually lower in case of a mortgage because the bank retains your property as security and in case you fail to repay the debt, the bank uses the property to recompense your lapse. We know it sounds scary! That is why consider your decisions wisely before mortgaging your home.  

Disadvantages of a mortgage

Though it has been aforementioned that mortgage interests are lower in comparison to other types of loans, it goes without saying that the tenure is longer in comparison to, for example, a home loan.  Therefore, the interest rates add up to become a lump sum amount, so much so, that you end up paying double than the money you initially borrowed.

         

Interest rates on a mortgage can vary, that is, you might start with an interest rate that you find reasonable. However, the interest rates differ depending on the market values. Usually, market rates tend to become higher over time than lower. Therefore, you might have to pay a hefty amount eventually to keep your property.

           

A mortgage involves surplus expenditures like insurance and legal fees that will be added to the loan that you are already paying.  

            Mortgage, Hypothecary Credit, Loan, Interest Rate

The biggest disadvantage of a mortgage, however, is that you lose your property if you fail to pay the price. Moreover, your family will have to pay a heftier price if something happens to you within the tenure period. Here a Life Insurance can save your dear ones from dire tribulations.

It is a good measure on your part to buy a term life insurance policy equivalent to the amount of your mortgage. In case you pass away (let us face it, we are not sure about the whims of the higher element) within the loan tenure, your family members receive the face value of the policy, which they can use to pay off the mortgage. You can go to any length to secure a house, but make sure you know the length and breadth of what is at stake and tie the rope around your waist very tight before taking the leap.

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