Taking out a mortgage is a serious
commitment, and is especially nerve
racking if you are a first time buyer.
Taking out a mortgage should not be
a scary thing, but rather a great
thing because it is allowing you to
achieve your dream of owning a home.
If you have the proper knowledge,
you will be confident and in charge
of your finances.
Holden Lewis, writer for Bankrate.com,
explains in his April 7, 2005 article,
“6 mortgage myths that can cost
you money,” how one should not
pay attention to popular myths when
out a mortgage.
The fist myth is that a 30-year fixed
rate mortgage is always the best option.
Lewis says that the 30-year fixed
mortgage is the best way to go if
you plan on staying in your home for
a long period of time, like 30 years.
Other than that, adjustable-rate
mortgages may be the way to go
because they will have lower rates
and offer lower monthly payments.
“Adjustables, especially the
popular hybrid adjustables that carry
an introductory rate that lasts three,
five, seven or 10 years, are appropriate
for those whom Walters [senior vice
president for a marketing firm] calls
“‘upwardly mobile people,
people who are transient, people for
whom a payment increase wouldn't be
the end of the world.’"
The second myth is that you should
off the mortgage as soon as possible.
You can actually save money by not
off the loan as soon as possible.
“Walters advises people to imagine
a scenario where they have a 5- percent
ARM and are able to deduct the interest
from their federal income taxes. That
lowers their effective interest rate
to somewhere in the neighborhood of
3.75 percent. Instead of paying extra
principal on such a mortgage, it makes
more sense to pay down higher-interest
debt, such as for credit cards and
auto loans, or to invest the money
where it can earn a return greater
than the mortgage interest rate after
The third myth is that you need a
down payment of 20 percent or at least
10 percent. “Many lenders have
lots of loan
programs for people who can afford
to pay 5 percent down or less -- including
zero down. In the mortgage industry's
horse-and-buggy days, the only zero-down
loan was available from the Veterans
Administration. That's no longer the
As a result, the next myth is that
you have to pay mortgage insurance
if you don't have enough money for
a 20 percent down payment.
'piggyback financing' is now almost
50 percent of home purchases,’
says Peter Bonnikson. A piggyback
loan lets you avoid paying for mortgage
Piggyback financing basically consists
of two loans. The first one is for
80 percent of the purchase price.
The second "piggyback" loan
is for the rest of the purchase price,
not including the down payment.
The fifth myth states that you cannot
get a mortgage if you have blemishes
on your credit.
Mortgage lenders have been finding
more and more ways to approve borrower’s
with less than perfect credit.
“The word ‘subprime’
is used to describe loans to people
who have credit problems that are
serious enough to justify charging
higher rates. The lender demands a
higher rate to compensate for the
higher risk. About one-third of households
fall into the subprime category, says
David Herpers, director of consumer
affairs for mortgage lender Amerisave.”
The last myth is that the term of
the mortgage has to be the term on
“Lots of borrowers are reluctant
to refinance because they don't want
to start all over again with a new
loan that's due to be paid off in
15 or 30 years. But you can ask the
lender to set you up with a shorter
These myths were valid points years
ago. Mortgages are now a lot more
flexible and understanding of realistic
financial situations than they used