Mortgages are defamed financial products

vandana7 By vandana7, 8th May 2014 | Follow this author | RSS Feed | Short URL http://nut.bz/1tlauymj/
Posted in Wikinut>Money>Mortgages

There is a lot of aversion toward mortgages due to sub prime crises, and foreclosures witnessed since 2007. But mortgages are the way to financial freedom, if used the right way.

Mortgages are defamed financial products

People who burnt their fingers with mortgages would not dare to take a mortgage loan anytime soon. They would also advise others against it. But are mortgage loans such villains? Not really. In fact, they can be used creatively to gain financial freedom.

For availing mortgage loan, there has to be some real estate investment or investment proposal. Therefore, advantages associated with real estate investment form integral part of these loans. Real estate as we know

a. Cannot be stolen easily;
b. Can fetch regular rent or lease charges which increase periodically and can save us from inflation;
c. Can be modified to become live in and live on;
d. Can be mortgaged every five years or so, to release built up equity in it and help in any financial emergencies;
e. Can increase social respect as most people prefer wealthy folks around them;
f. Can increase obedience and care from family members who wish to inherit it from us
g. Can appreciate over the years fetching handsome returns, which incidentally would only be taxed when the asset is sold;
h. Can prevent unscrupulous borrowers because nobody expects others to sell or mortgage their properties for monies; and
i. Can become a source of finance for any business venture

Of course, some of that is not to be taken seriously if it is not applicable to you.

But lets see the advantages mortgages themselves offer.

a. They force you to save the monies which would otherwise be spent lavishly with nothing to show for it;
b. They allow you to actually purchase the asset with others monies and you pay nominal interest for it. Did you realize that? When you set up a business, you do invest substantial amount or end up being subservient to many other investors.
c. They prevent theft of the asset. Yeah...there are people who can come over and change the locks when you are visiting somebody and claim your house. But if your home is mortgaged and you are regularly paying installments, that can't happen.
d. They create employment not only in the financial sector but also in other manufacturing sectors such as cement industry, steel industry, paint industry, transport industry, and what not.
e. They prevent you from focusing on the asset and become subject to proverbial itching of changing assets once too often like stocks in share markets. Real estate values increase slowly, and over a long period. It is not easy to gauge intrinsic value of the asset at any point of time. Moreover, different developments occur over a period and different people value the asset differently. Given such nature of real estate, holding it till it witnesses sudden spurt in value is always advisable.
f. You can negotiate your mortgage loan by extending repayment period, or bringing down the interest rates. You can also get moratorium if you are unemployed or not having a job that can cover the installment as of now. At times, the lenders are even agreeable to let you pay lower installments if there is a large sum of money that is likely to come your way in future. At other times, you may be allowed to pay only the interest till you can start repaying the loaned amount as well. These are huge concessions in financial world. They save your credit score, and simultaneously allow you to pay the installments at your convenience.

That should have convinced you that mortgages do not qualify as the financial devils.

Now, where did we go wrong?

a. Not understanding the product;
b. Overestimating our abilities to repay because of marketing techniques; and
c. Not selecting the right product

Does it not seem as if everything was in our hands, and yet we did not do it right?

Tags

Financial Freedom, Financial Products, Mortgage Loan, Mortgages, Real Estate Investment

Meet the author

author avatar vandana7
Hi...I suddenly remember ABBA ..I am nothing special...hope you like what I write, and I like what you write.

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Comments

author avatar Sivaramakrishnan A
8th May 2014 (#)

A roof over our heads gives us security but we should know our limits. It is better to underestimate and play safe when it comes to borrowing. Good points, Vandana - siva

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