April 7, 2005 Finance General 1

I see more and more folks jumping on the interest only loans scam. This is very dangerous. Sure your payments are lower…for 3-10 years..then you start paying off the principal as well..then you take a big hit. Since almost all of these interest only loans are adjustable if/when interest rates go up after your interest only section goes away your payments jump even more.

The best way to avoid this trap is to not use some tricky loan or fancy math to get into more house than you can afford. Me and gen got the house we could afford. We are under a 30-year fixed rate mortage. No interest only or math tricky loans just a good old fashioned loan.

The other side of the issue is lending agents are lowering their standards to pile on the debt to Americans. They are getting great short term results but as more and more folks get overburndened they will start defaulting then the whole house of cards is going to fall down. We had this back in the 80’s with the S&L crash. We may have another even larger one brewing either in this decade but surely in the next if things continue the way they are going.