You're excited to purchase your first home, especially because after a long search, you've finally found one you want. You've finally obtained a mortgage you can afford. The problem is, the mortgage is what's called an "adjustable rate" mortgage, i.e., it's a "ballooning mortgage." You can afford the mortgage now, but in a few years, you won't be able to afford it once your monthly payment obligation goes up.
When people agree to an adjustable rate mortgage, they could be setting themselves up for failure -- especially if they currently cannot afford to pay the payments on the mortgage once it balloons. Nevertheless, this is not enough to stop many optimistic homeowners from getting him or herself into a situation like this. When the mortgage begins to balloon, if he or she is not earning a higher income by this time, the homeowner will need to scramble to refinance or sell the home.
Refinancing is an excellent solution, but what if home prices drop? What if we experience another real estate market collapse as we experienced in 2007-2008? The homeowner may not be able to refinance the mortgage if the homeowner owes more on the home than it's now actually worth. This is a financially dangerous situation for any homeowner to be in.
If your shopping for a home mortgage, you might want to speak with the real estate law team at our legal office to ensure that you're fully examining all the potential pitfalls related to your home purchase. Having an attorney on your side can help you avoid mistakes you'll later come to regret.