Taking More than You Need (on Your Mortgage)

Have you qualified for a much bigger mortgage than you'll require on your home? Is your home in need of some redecorating or renovation? Perhaps you have some credit card debt that is getting bigger instead of smaller?

You could be in a good position to benefit from taking more than you need on your mortgage.

If you have a sizable down payment, you may want to take more on the mortgage, and put less money down as part of your down payment. This leaves you with cash in hand, ready to use as you need.

So, why take more on your mortgage? In most cases, your mortgage loan is the cheapest loan you'll ever be able to get. Interest rates on mortgages can be 5 to 10% lower than the interest on a loan, depending on where you get your mortgage and how good your credit rating is. In 2005, if you have a good credit rating and you are working with a reputable bank, many home mortgages can be had for 5% or less, while most consumer loans will be 10 % or more. Credit card debt will likely cost you in the range of 15 to 18% interest and can be costing you as much as 29% interest, if your payment history is not spotless. As a result, if you can pay off your high interest credit card debt and replace it with mortgage debt, you will usually be much farther ahead.

What if you want to spruce your new place up? If the property you bought needs some renovations, taking a bit more on your mortgage can work for you in two ways: your renovations will usually add value to your home and, you'll get the money for those renovations at the lowest possible cost to you. You'll benefit in the long run because you'll have spent less on renovation costs and you'll get more value (and enjoyment) from your home.

If you'd like to take a larger mortgage amount, just be aware that you should not take so much that your down payment becomes too small in relation to the purchase price of the home. Also, some lenders will want your mortgage plus down payment to equal the market value of the home, and will not want to give you monies in excess of the value of the home.

One caveat: if you decide to take more on your mortgage, it should be your decision. Do not be pushed into such a decision by your lender or real estate agent. This can be one of the hallmarks of predatory lending practices, and you can end up with a mortgage payment that is bigger than you can handle. Always consider your own financial situation first before deciding to increase your mortgage. If it's the right thing for you, it should put you in a position where your financial situation is completely manageable and you are the primary one to benefit.

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