Is a Bigger Mortgage Better?

by Edward Lederman 09/15/2019

When dealing with mortgages, people erroneously believe that the smaller the mortgage taken out, the better for them. This article will clarify the reasons why even as daunting as it sounds, the larger and more prolonged the loan, the better.

People who apply for mortgages are those who want to own a house but don't have sufficient cash to buy one or those who need a large sum of money from a lender and use their house as collateral. These borrowers have an extended period to pay it back, and the length of time varies up to 30 years depending on the agreement between the two parties and the size of mortgage money-wise. 

If the mortgage borrower is unable to pay after the stipulated time, the property is foreclosed and most probably sold so that the lender, which is usually the bank, is paid back for the loan. For this fear of not being able to pay back, borrowers tend to get smaller mortgages, but below are reasons why getting bigger mortgages may be better in the long run;

1. It gets easier 

Over time, payment gets more manageable because the property value appreciates, and the borrower's income rises steadily while monthly mortgage payment remains the same especially if choosing a fixed-rate loan. Thus, as time goes on, the money to be paid gets less daunting and less significant in comparison to the borrower's inevitable financial growth over the years. In the beginning, it may be a struggle to make the payments. But, over time it gets easier.

2. Mortgage accords you the ability to invest more and quicker 

Many people prefer long mortgages because that means that the monthly payment will be smaller and spread out over a longer time as opposed to short-term loans. It may be better to invest a more significant amount now to reap more productive rewards in the future as one can use the proceeds from the investment to pay up. This seemingly huge risk only encourages more and faster investments too. In the long run, bigger mortgages result in bigger monthly payments, but it may also result in greater wealth.

3. Mortgage: liquidity and flexibility 

It is best not to listen to people who say that all that matters in mortgage loans is paying it off. Or, that it is a risky thing to do. Applying for a small mortgage loan with this mentality will not grant you flexibility. People who get small mortgage loans do not put into consideration all the other necessities toward which the money should go. Hence, one loses liquidity and control over access to one's money. Even though it would most likely appreciate in the long term, you are going to be handicapped in the short-term.

No matter what you decide, it is essential to understand that you must do what works the best for you both long term and short. Discuss with your personal financial consultant and real estate agent.

About the Author
Author

Edward Lederman

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