Mortgage Lowdown

Terms could be deceptive at times. The best possible example of this kind is the term — cost and cash — getting confused in mortgage deals. Two terms are invariably used i.e. no-cost and no-cash. While both refer different things altogether confusion remains the common factor for many customers. 

But don’t get confused anymore with these similar "looking" terms. The confusion is considered to be one of the worst mistakes a borrower can make in a mortgage deal. Borrowers pay a higher interest rate on a no-cost mortgage. The lender finds that rate by estimating the costs for which he would be responsible, and then finding the interest rate that justifies paying those costs. Whereas in no-cash case, during closing, borrower does not pay the settlement costs, and the lender doesn’t pay them either. The costs are added to the loan balance, so the borrower pays them over time, with interest. Now you will get it right. Right?

Wonder how flexible mortgage works and don’t know how to figure it out — no problem, just read through. Owing to competition, mortgage firms offer flexibility plans for payments. This enables customers (borrowers) to pick i.e. to skip up to two mortgage payments in any 12 month period, and up to 10 over the life of a loan. Although this is just an example and you can take these figures as a possible assumption. But truly, various companies are coming up with such offers to make you feel a little puzzled. So, a skipped payment results in an additional loan, equal to the payment plus a healthy access fee, tacked on to the balance seems okay and is actually worth to look at.

Practically speaking, a borrower doesn’t need to go for a high-cost way to borrow for emergencies. What is needed is a no-cost way to accumulate a reserve within existing mortgage which would allows skipping or reduces payment when necessary and a truly flexible mortgage would provide this. The flexible mortgage would base the borrower’s payment obligation on the loan balance.