Home Mortgages... Beware the Pitfalls on Some Loans

Homebuyers may not realize that monthly payments on some types of specialty mortgages can increase by as much as 50 percent or more when the introductory period ends. That’s one of the messages that the National Association of Realtors® and the Center for Responsible Lending are trying to drive home in “Shopping for a Mortgage? Do Your Homework First,” a new brochure to inform homebuyers about the risks and advantages of specialty mortgage products.

The publication is part of a new NAR consumer education campaign addressing specialty loans and abusive lending practices. The brochure helps consumers understand conventional loans such as fixed rate and adjustable rate mortgages, and more exotic loan programs, including interest-only mortgages, 40-year fixed-rate mortgages, negative amortization mortgages, and option payment adjustable-rate mortgages.

“The growth of the specialty mortgage market has helped many borrowers finance the American dream of homeownership, but these mortgages come with risks,” said NAR President Al Mansell of Salt Lake City. “Consumers are susceptible to loans with monthly payments that can spike dramatically, or that actually increase the amount they owe on their home. Homebuyers should consult with a Realtor® to learn about different financing options and their implications over time.”

“We’re warning homebuyers to approach these new mortgages carefully,” said Mike Calhoun, general counsel of the Center for Responsible Lending. “They should be cautious about accepting a mortgage they can’t afford. These mortgages can be devastating for families who are stretching their budget to buy a home.”

David Lereah, NAR’s chief economist, said, “Consumers particularly need to understand the risks inherent in specialty mortgages when financing a home purchase. The National Association of Realtors® is committed to giving our Realtor® members the tools and knowledge essential for their customers’ success.”

Because homebuyers turn first to Realtors® for advice on the real estate transaction, Buyers can ask their Realtors® for a copy or can access the brochure on NAR’s consumer Web site at www.realtor.com. The brochure also is available through the Center for Responsible Lending at www.responsiblelending.org.