This article is about Buying a House with a Mortgage. Owning a home is the stereotypical “American dream”, and many people buy a home with a mortgage loan the minute they have enough money to make a down payment. Most do it beause they feel like paying rent is a waste of money, when they can use that same amount to eventually own the property. However, the home itself isn’t the only cost involved when you have a mortgage.
Most people do not have the cash to buy a house outright, and must take out a mortgage. That means paying interest every month for years- if you have a typical $300,000 mortgage, you will pay about $15,000 in interest just in the first year. You get a tax break on those interest payments, but that’s still a big chunk of your budget. There are also procedural costs involved in a mortgage, such as closing costs, points, processing fees, legal fees and administrative fees. If you try to close the loan ahead of schedule, you would be liable for a prepayment penalty. When all those costs are added up, renting makes better sense for some people.
A mortgage comes with a large down payment, as no lender will finance the home’s entire cost. To show the lender that you are serious, you will probably be paying at least 10-20% of the price. That can lead to strained finances from the start. You may also have to spend to refurbish the house to make it more livable.
One of the biggest advantages to buying a house with a mortgage is that the interest paid is tax-deductible. That makes your mortgage and your HELOC (home equity line of credit) a good, low-cost way to borrow money. If you are at the beginning of a repayment schedule, you may miss the tax deduction that could help balance income taxes and prepayment penalties. Many investments can provide higher returns than the money saved by paying interest on a mortgage- the experts recommend that a person pay extra into IRAs and 401k plans before paying extra toward a mortgage.
If you are looking to build good credit, having a mortgage is the best thing you can do. Long-term loans are the foundation of a great credit rating, and mortgages are the most respected credit form. If you pay your mortgage on time, you will be eligible for better interest rates on credit cards and other loans, as well as lower insurance premiums. When credit companies take a look at your history and see that you’ve made your mortgage payments on schedule, they see you as far less of a lending risk.
Also, you should take into consideration the recent crash of the housing market. Home values don’t always go up- and if they do go down, you will be stuck in an “upside down” position, meaning that you owe more on your home than it is actually worth. Buying a house with a mortgage can be a good idea, but only if you are totally comfortable with your financial situation.