Why Mortgages Are Good – Fighting Newer Home Loan Myths

The Recession Spawned a New Set of Home Loan Myths, One of Them Being That Home Loans Are a Bad Thing. Mortgages Are Great, and a Home Loan Can Be a Great Idea for You.

Home Loan Myths

All the conversations about mortgage rates and the housing market make it clear that understanding home loans is important. But all the home loan myths out there might make it seem like a mortgage is a risky, expensive, and generally bad idea. It’s certainly a complex topic and if you try to get a house and mortgage without some basic information you can make a costly mistake that might leave you bankrupt or homeless in a few years. However, it is a subject that can be learned enough to get a good deal, and there are a number of reasons why a mortgage is a good idea for many, many people in this country, despite the scary mortgage myths and stories you may have hear.

This is by far the biggest benefit of mortgages and the main reason why they are a good thing, despite all the bad news and stories you may have heard about how mortgages were at the heart of the financial collapse in 2008. In the United States, the vast vast majority of homes bought by private homeowners have been purchased using a mortgage for the past half-century. The emergence of this type of lending facilitated the modern “American Dream” by putting home ownership within reach of average, middle-class people who could never come up with the hundreds of thousands of dollars in cash necessary to purchase a home outright.

After all this time, buying homes on mortgage has become accepted practice even for those who can afford to pay cash because rate tend to be low enough that it makes more sense to hang onto the extra savings and use it for security or other investments. Being safe and acceptable, mortgages remain the best way to get access to home ownership, and you shouldn’t let any home loan myths convince you otherwise.

As long as you don’t sign a mortgage contract with payments you can’t afford, you mortgages don’t set you up for financial ruin. In fact, with just a bit of research and assuming you’re borrowing from a reputable bank, it’s relatively difficult to get a loan that you really can’t afford. A series of regulations after the financial crisis have made it much more difficult for banks to give loans to people they shouldn’t. You really just have to think about your future finances, estimate future earnings conservatively, and do some simple math. This information combined with quotes banks can offer will give you all the data you need to figure out what you can afford so you can find a house that will fit your budget. A safe way to afford a home that you’ll enjoy for years is very appealing.

Getting a home loan, probably the biggest debt you’ll ever take on, is a massive undertaking. But the process of paying it off and showing that you can manage your finances while making mortgage payments is great for your credit. Your ratings do take a hit when the loan value amortizes, but over the life of the loan, having a home mortgage will give you much better access to financing, credit lines, and everything else that requires a credit check. In other words, other things being equal, a mortgage can improve your overall financial situation, and it’s good experience to help you start sorting out your finances.

This is related to the first point, but owning a home is a very good thing. Financially, the biggest advantage is that instead of throwing money away on rent, your mortgage payment every month is gaining you equity, which means actual cash value in your home. Assume you put 25% down and through mortgage payments you’ve paid off another 8% of the principal on top of covering interest. So you have functionally paid for one-third of your home. At this point, you own one-third of it outright, so when you sell the home, you’ll walk away with cash equal to that percentage of its sale price, the other two thirds going to pay off the remainder of your loan. Assuming it’s been a few years and the housing market is healthy, you’ll get back more cash than you put in, meaning your investment earned you a profit.

You can also refinance your loan after you’ve paid part of it off to get cash out of that equity if you want to make another investment such as remodeling, starting a business, or putting a down payment on another property. Home ownership gives you a new type of financial strength and flexibility that you wouldn’t have been able to access if you hadn’t take a mortgage.

Although there are countless home loan myths that make mortgages seem scary and problematic, getting a mortgage is a good thing. If you can afford it and want to own a home, taking out a home loan is a great idea, and silly home loan myths shouldn’t discourage you. If you have home loan questions, don’t hesitate to speak with your local bank to discuss any home loan myths that might be discouraging you from borrowing.