There are always two sides to a coin. The same applies to mortgage loans. There are benefits that you can get, and there are also disadvantages that are not favorable to you. Some borrowers prefer them while others oppose their use. To understand the issue better, let us try to find out more about the advantages and disadvantages of mortgage loans. Do the benefits outweigh the unfavorable features they are known for?
The Advantages of Mortgage Loans
They give you the opportunity to get a home without having to pay for it in full. After the down payment when the mortgage loan is approved, the property is now yours although it is mortgaged for several years until you pay it in full.
They allow you to have an asset whose market value could increase substantially without shelling out too much to own it. The property that you buy in installments could considerably increase in market value due to several improvements that you may want to introduce in the place. This will give you a greater opportunity to make money if you wish to sell the property that you did not pay for in full in the first place.
They allow you to deduct some expenses on your income tax. The expenses that you pay for the closing deal are deductible for tax purposes.
They can improve your credit score. Your regular payments are reported to credit bureaus. This will help a lot in improving your credit rating.
They provide you with an opportunity to settle your debt earlier. The long term provisions of the mortgage contract will give you a lot of time to save or generate income from other sources. During the term of the loan, you can always pay your account in full.
They provide the cash you need. If you are the owner of the house before you negotiated the mortgage loan, you can use the cash that you will receive for whatever venture you wish to enter.
You have a fixed payable spread over many years. Since your monthly payment is fixed, you can properly plan your budget.
If your account is an interest only loan, you can use the amount set aside for the principal (which is due later) for other ventures. This is an opportunity to make extra income.
The Disadvantages of Mortgage Loans
Your property is in danger of getting foreclosed. You will risk losing your property once you fail to pay your regular installments. A foreclosure will also pull down your credit score.
Your property is subject to depreciation. The long term duration of the loan may greatly diminish the value of your asset because of it. When your loan reaches the maturity date, the property may be already depreciated.
If you pay the interest in adjustable rates, you will risk paying a larger amount when the rates increase tremendously.
If it is a fixed rate mortgage, you will lose some money if the interest rates become significantly lower.
You pay interest charges, discount points, taxes and other fees. The closing costs that you will have to pay for a mortgage loan are substantial. It means a lot of money is needed to source it out.visit http://economictimes.indiatimes.com/industry/banking/finance/banking/icici-bank-scores-a-first-mortgage-portfolio-crosses-rs-1-lakh-crore/articleshow/50575404.cms for more details.
You cannot sell the house until the loan is fully paid. Under a mortgage loan agreement, you are not allowed to sell the property until the mortgage contract is finally settled.