Advantages and Disadvantages of a Mortgage

Mortgages are debt instruments that offer repayment basis where the borrower pays for the price of the property plus interest. A mortgage usually has a term of 25 to 30 years wherein after the term period, the mortgage debt has been fully paid.

As mortgages help individual purchase property at an affordable price, here are some advantages and disadvantages of getting a mortgage:

Advantages:

  • Mortgage Makes Property Purchase Affordable

As mentioned above, one of the best way to make a real property affordable for someone to purchase is through a mortgage. The licensed money lender spreads out the payment of the property throughout several years where monthly amortizations include interest payments.

  • Cost Effective Borrowing

Interest rates on a mortgage tends to be a lot lower than interest rates applied to other loans. The reason for this is that the lender puts a lien over the house which allows the lender to take back the house and sell it to another person.

  • Mortgages Don’t Deplete Savings

For individuals who have enough money can still purchase through a mortgage and put the remaining amount in an investment vehicle that can help them earn the amortization payments.

Disadvantages:

  • Total Cost is Higher

The total accumulated amortizations will always amount to way more than the price of the property. Despite of low interest rates, the long period of paying amortization accumulates a large sum of interest yield that is often way more than expected.

  • Fees and Charges

Like any other loan, mortgages incur penalty fees, finance charges, and other payments required based on the conditions and terms. It’s not always that the culprit in accumulating high total costs is due to interest yield. Sometimes fees and charges play a big role in the total amount being paid.

By understanding the points that were given above, you understand and identify that getting a mortgage  is worth it.