Mortgages traditionally came with few choices; you had to pick from 30 or 15 year loans with fixed or adjustable interest rates. Today’s marketplace has exploded with mortgage products for everyone in every circumstance. The American dream of homeownership has never been easier in the history of this country; nearly 69% of families own their homes.
The bad news is many of these families used risky mortgages to purchase homes they could not afford with traditional financing. This doesn’t allow them any cushion with their monthly mortgage payments. If the economy turns and interest rates rise sharply, these homeowners may find themselves overexerted in their monthly budgets.
The government has issued warnings to consumer groups and mortgage lenders stating that homeowners are setting themselves up for significant troubles. The Federal Reserve has also asked mortgage lenders to raise their standards for granting mortgages.
Tighter standards and higher interest rates could mean homeowners will have to pay more in 2006 to purchase homes or refinance existing mortgage loans. This is why as a homeowner, you must do your homework and shop around before mortgaging your financial future.
If you purchase a home with a risky option or interest only mortgage you could easily be burying yourself under more home than you can afford. With these risky loans once the principal balance comes due your monthly payment can quickly become unmanageable.