Are you wondering how much you could afford to pay for your mortgage if you bought a home this year? Even though mortgage rates have lowered somewhat, home prices are still quite inflated, which can lead you to having an expensive mortgage price.
Here are a few of the possible risks of taking on a larger mortgage payment.
Reduced Ability to Renovate
First, having a larger mortgage payment could lead you to have a reduced ability to renovate your home. Even though renovating your home can seem like an exciting option, it could actually increase the price of your mortgage payments.
This might happen for a few reasons. Making improvements to your home could lead to an increase in your property taxes and your home insurance premiums. Depending on the renovations you make, this could increase your monthly mortgage payments, especially if you include home insurance and property taxes in your mortgage payments. Sometimes you can include future renovation costs in your mortgage payments if you’re buying a house that is obviously in need of repairs.
Foreclosure
Next, taking on a larger mortgage payment could also increase your risk of foreclosure. Foreclosure happens when the homeowner cannot keep up with their mortgage payments. As a result, the lender or bank has the ability to repossess the home and sell it.
Facing foreclosure can be scary, especially since you likely won’t be able to afford a new home if you can’t keep up with your current mortgage payments. Sometimes you can negotiate the terms of your loan with your lender if you know you’re nearing foreclosure. Modifying your loan terms can help you avoid foreclosure.
Negative Impact on Your Credit Score
Finally, another risk of taking on a larger mortgage payment is that it could have a negative impact on your credit score. A larger mortgage payment doesn’t automatically ding your credit score, but the financial decisions that you make as a result of trying to afford your mortgage payments could definitely affect your credit. For example, if you’re stressed about paying your mortgage and don’t want to face foreclosure, you might get behind on your other bills or paying off your credit card. Even a single missed payment can cause your credit score to drop significantly. If you have a bad credit score, you’ll have much more difficulty making large purchases, getting approved for another credit card, or refinancing your home.
So, when you’re considering taking on a larger mortgage payment, remember this article. Even though you might think that a larger mortgage payment will help you pay your house off faster, remember the risks associated with a larger mortgage. You could have a reduced ability to renovate, face foreclosure, or experience a negative impact on your credit score.
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