Purchasing a home has become a staple in today's society, but holding onto that dream of home
ownership has slipped past many in the form of home foreclosures. The lending industry in a blind
rush to offer mortgages to anyone that breathes, has set off an explosive disruption in the market place, by offering loans that either people did not understand the type of loan they were acquiring or giving loans to people that should not have them in the first place.
Adjustable rate loans have seen their fair share of victims in the last few years. These loans lock you
into a certain rate for a number of years, but then jettison to a new rate according to the Fed's rate at the time. That new rate may lock in for one or two years at a time. The problem with this type of loan is you do not know what rate you may lock into in a few years. If the rate jumps 3 to 5 points, your loan payments could double. Since your income hasn't doubled, it leaves you with a huge payment that you may not be able to make, hence the foreclosure.
For this reason it is important to know the type of home loan you are getting from the lender. A 30 year fixed rate leaves behind no surprises. The rate is the same for the lifetime of the loan. While an adjustable rate may seem fine at the beginning, you may be in for a rude awakening down the line when you can no longer meet your payments.
Make sure you understand the mortgage loan completely before signing on the dotted line.
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