The housing market is in flux, with a variety of new alternatives to traditional mortgages. While these options may be more attractive than the standard 30-year fixed-rate loan that you’ve been hearing about for decades, they have their own risks and advantages, and knowing what they are before you sign on the dotted line can help you make an informed decision about your home purchase.
What Are The Benefits Of Alternative Mortgages?
Reduce The Risk Of Default
One of the most appealing aspects of alternative mortgages or private lenders is that they reduce the risk of default. Borrowers can meet their monthly mortgage payments through a combination of current income. Liquid assets are generally less likely to fail to make payments than borrowers who rely on future income or other less liquid forms of collateral for payment. This may mean that some borrowers with unconventional forms of income, such as self-employed artists or freelance writers, may find it easier to qualify for certain mortgages.
Lower Rates
Alternative mortgages have several advantages over traditional mortgages. They typically have lower rates and fees because they’re unsecured loans, meaning there’s no collateral backing them up. Because they’re usually offered by non-profit organizations rather than banks or other institutions, they’re much more likely to charge lower rates.
Ideal For People With Low Credit Scores
If you have a high credit score, a conventional mortgage is likely your only option. A high score lets you get the best interest rates and the lowest down payments. But if you have a low score, an alternative mortgage may be your only choice.
Alternative mortgages let people with poor credit scores take out home loans. These mortgages have higher interest rates than conventional mortgages, but they also have fewer requirements. If you can’t meet the conventional requirements to get a home loan, an alternative mortgage might be your best option. If you are wondering how many mortgages you can have, reach out to b-lenders.
What Are The Disadvantages Of Alternative Mortgages?
Pay More Interest Over Time
With private mortgage lenders, you can pay more interest over time. That’s because some of these loans have higher interest rates than traditional mortgages. This means that even if you pay your bills on time every month and your original mortgage amount stays the same, you’ll still pay more interest than someone who took out an average mortgage.
High-Risk Factors
Alternative mortgages generally have higher interest rates and larger down payments than traditional mortgages. The increased risk involved in these types of mortgages is offset by the higher interest rates, designed to encourage savings and reduce the likelihood that a borrower will default on their loan. However, this can be an issue for some borrowers who don’t want to save money or can’t afford to pay high-interest rates on their mortgages.
Limited Options
Alternative mortgages typically require more upfront cash than traditional loans, so if you need a home loan but don’t have enough cash for a down payment or existing savings to cover other closing costs, these types of loans may not be right for you.
Key Takeaways
Alternative mortgages fall outside the conventional categories of fixed-rate or adjustable-rate mortgages. They can include fixed-rate loans with features like interest-only payments or balloon payments, or adjustable-rate mortgages that offer a lower initial interest rate than the traditional 30-year mortgage.
