Pros and Cons of Mortgage Loans

Mortgage loans are generally considered a necessary part of life for most people. Few of us have enough cash on hand to pay for a house out-of-pocket, after all, but everyone needs a place to live. Some people do opt to put in the work to save their money and buy a house rather than get a mortgage, so it’s not impossible. Before you decide what to do, it helps to know the pros and cons of getting a mortgage loan in the first place.

Pro: Mortgage Loans Allow You to Buy a Home

The first and most obvious benefit of mortgage loans is that they allow people to purchase a home where they can settle down and enjoy their lives. Without a mortgage, most people couldn’t afford the average $250,000 to $350,000 home price. Getting a mortgage allows people to make a small downpayment and set up monthly payments to repay the loan feasibly. 

Pro: Mortgage Loans Can Boost Your Credit

A mortgage is considered an installment loan. It is also a secured loan, which makes it a great way to build your credit. Unlike credit cards, a mortgage shows that you are being responsible with your borrowing—you’re using credit to provide your family with a home. On-time payments can boost your credit score significantly and help you improve your financial situation.

Con: Mortgage Loan Rates Can Be Expensive

Unless you have good credit, you might be faced with high mortgage loan rates. Median interest rates run from five to eight percent (5-8%), but those can vary based on market conditions and other factors. Some people with bad credit might get approved, but only if they agree to a 12-15% interest rate, for example. You can compare rates and terms online and use various mortgage calculators to get an idea of what you might be approved for or how much your payments would be.

Con: Defaulting on a Mortgage Could Cost You the House

When you don’t pay rent, you risk getting evicted. When you don’t pay the mortgage, you also risk losing your home, but to foreclosure instead. This not only leaves you with nowhere to live, but it creates a huge financial black mark on your credit history. Of course, choosing an affordable mortgage that is well within your means can prevent this from happening. Banks are getting more selective about mortgage lending, helping deter the number of people who get mortgages they really can’t afford.

Pro: Mortgage Payments are Usually Cheaper Than Rent

One of the main reasons people choose to buy a home is because getting a mortgage is typically cheaper than paying rent. Right now especially, as rental rates are soaring, mortgage rates are still relatively low and make it easy for people to afford housing. That is, of course, if they have the credit to get approved for a mortgage in the first place.

Pro: There are Federal Programs Available

Speaking of approval, mortgage loans are available from the federal government, and can be a great way for those with less-than-perfect credit to get started on their home-buying journey. The Federal Housing Authority (FHA) issues loans for mortgages for those who can prove their financial capability, although they may have stricter lending requirements or inspections before approving a loan.

Ultimately, a mortgage is a great way to start settling into your future. Those who are ready for all the ups and downs of home ownership will find that getting a mortgage is a lot simpler than they think. Just remember to shop around and compare rates, and to never agree to a mortgage note that’s more than what you can afford.