Getting A Larger House - What Type Of Mortgage?

[Apr 16, 2008.]

Today, if you want a larger house, there are a number of ways that you can do it. In days gone by, however, about the only way you could do this was if you got a better job, received an inheritance, or to borrow money from a relative. Now, it is rather easy, because lenders are making it so much easier to get larger amounts of money for a mortgage. The question is, though, is this good practice, and is it safe? Here are some thoughts for you about how it can be done as well as some financial advice on the matter.

Types of Mortgages Available

If you want to buy a larger house without having an increase in your income, some mortgages that will permit this are typically in the ARM category, or balloons. One type, called an interest only mortgage, is in this category. Actually, an interest only option can be attached to any mortgage, not just to an ARM. Either way, though, getting an interest only option will lower initial payments, but they will be raised to compensate later. This could mean quite a jump.

So unless there is a definite increase in your income, this could spell trouble when it does happen. If you already have this type of mortgage, it is best that you add to your monthly payments the amount that you would be paid in order to reduce some of the principal which will keep your payments down a little when the time for fully amortizing payments comes.

Many people also use balloon mortgages to get that larger dream house. The payments on a balloon mortgage are calculated on a 30-year basis. This gives you a lower fixed payment for typically either 3,5,7 or even 15 years. At the end of that time, the full payment is due, or it will need to be refinanced - at the current interest rate. This type of situation provides a generally lower payment for the fixed portion of the mortgage. The danger, here, though, can occur if the interest rates are raised too high for this family to be able to handle

Problems with this arrangement

While many people are getting into these situations, and getting their larger house, many are also getting into trouble with it. If the economy stays good, then it really could turn out to be a good deal. On the other hand, though, the economy has not been all that good, and the financial prognosticators are strangely silent about the future of the economy and are reluctant to make positive comments.

Jobs are being laid on the line daily because of the rapid economic changes. Some have even been almost shocking as some corporations, giants in their own industries, are now collapsing. Already the lenders are talking about needing to put some greater restraints on who they lend to because too many are losing their beautiful homes now.

Playing Safe

With so many changes going on around us, it is questionable as to the wisdom of such a move. Probably a better one, in terms of the cost if you buy too large and then run into financial problems, would be to buy a house you can afford, and wait and see what the economy will do. That way, two things happen. First, you get to keep the house, and have affordable payments. Secondly, you build up equity. Then, if the economy continues to do well, and your income increases - you can buy that larger house without nearly as much at stake.

It will allow you to sleep a little better, too, if you do not have to check the economic indicators every day as it comes closer to having to either refinance, or go to higher payments.

More Information:

• How To Tell When It Is A Good Time To Refinance
  With the economy fluctuating as much as it is today, every now and them it produces a time when it is a good idea to refinance your mortgage. You have heard of others making that change, and may have heard that some got a much better deal. Mortgages are different though, and so are people's circumstances.


• What Is A Home Equity Line Of Credit And Is It For You?
  A home equity line of credit (HELOC) can be a real help to you financially if you need to get a source of money - and have some equity in your home. It gives you various options and a degree of control that you do not have with other type of mortgages.


• Home Equity Loans - How To Get A Good One
  If you have a home, then you already know that you can tap into your home's equity and use it any way that you want. Many lenders have provided you with a wide variety of ways for you to access that money.

• HUD - buying a home


• Ginnie Mae


• Gov advice on the best mortgage