Which Mortgage Is Suitable For Me

Just to let you know there are consumer groups who believe that a lender should not allow borrowers to take mortgages that are unsuitable for them. Lender who does allow it should be held accountable. The case for suitability looks both simple and plausible and it seems to be making headway in Washington. These consumer groups propose that with a suitability standard in place it would solve some problems such as a bad mortgage selection, unaffordable loans, no-benefit refinances, and steering to high-price loan providers.

Bad mortgage selection means placing a borrower in a mortgage that is too risky for them. Take for instance an interest-only adjustable rate mortgage or even just some of the adjustable rate mortgages, borrower are attracted to these mortgages by the lower payments. In too many cases, they don't understand why the payments are lower and are not prepared for the risk of the payments increasing in the future. Sometimes the marketing of these mortgages is based on deception. The most blatant piece of the deception is the loan provider allowing the borrower to believe that the lower payment is good for 5 years when it is actually only good for one month.

Setting suitability standards is almost impossible since loan providers have a personal stake in the outcome. Making it impossible for them to act as judge on the suitability of the mortgage to the borrower. They are in the business to sell loans. Judging that a loan is not suitable for a buyer would cost them money.

Determining the suitability of an investment or a mortgage requires balancing the objectives of the client against the risk of the loan. The objective of the borrowers are complex, varied and often not known by the loan provider. Most borrowers objective is to reduce cash outflow to invest in securities, reduce cash outflow to pay down a second mortgage, pay principal when convenient, buy a higher priced house, and reduce payment to avoid default. Borrowers who want to invest the savings from their mortgage into monthly cash flow to other mortgages. Keeping this objective in mind whether or not the mortgage is suitable for the borrower depends on whether of not they have the discipline required to invest the savings every month rather than spend it. Also, whether or not they have access to investments that will give them a higher return on their money than a mortgage rate will without taking the extra risk.

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