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Before taking out a mortgage that offers low initial payments and defers payments of the principal or of both the principal and interest owed, borrowers should ask themselves the following questions, according to the National Association of Realtors and the nonprofit Center for Responsible Lending:
· How much can my monthly payments increase and how soon can these increases happen?
· Do I expect my income to increase or do I expect to move before my payments go up?
· Will I be able to afford the mortgage when the payments increase?
· Am I paying down my loan balance each month, or is it staying the same or even increasing?
· Will I have to pay a penalty if I refinance my mortgage or sell my house? (In other words: Is there a prepayment penalty clause?)
· What is my goal in buying this property? Am I considering a riskier mortgage to buy a more expensive home than I can realistically afford?
