If there is anything that the recent financial crisis has taught us, it is that we should not trust and accept any old home loan that is offered to us off the back. With the recent property price saga of 2007/2008, people are becoming ever more cautious - and are learning financial lessons which should have been taught to us a long time ago.
The key lesson is that you should not take on more debt than you can afford to service. People who lost out in the recent financial crisis were those who had leveraged themselves too highly, and therefore had no chance of being able to meet the repayment obligations that they had, due to be contracting labour market, and the increase in interest costs.
Just imagine someone who signed up for a discounted mortgage two years ago, with an expectation that the rate would increase by perhaps .01 or .02% over the course of one year, only to find that the actual increase was 2% or 3%.
The increase in repayments in such a situation would be catastrophic, assuming that the person was still on the same income that they were on a year ago.
But the real question which needs to be asked here is - why did that person take on the discounted mortgage in the first place?
Yes, you guessed it. That age-old saying that greed is the bane of people's lives has come back to haunt many Americans. For those who invested their life savings on the stock market, commercial property, and debt markets - the returns that they will have seen are sure to be angering and disappointing.
Thankfully, if you are looking at buying your first home, you can learn from these past mistakes. Whilst the pain and agony of the choices which people previously made are still fresh in the air, now is the time to take a conservative view, and understand that you should only purchase things which you can actually afford.
Of course, this is not to put you off getting a mortgage. Mortgages are incredibly useful facilities, which can help people achieve financial success well beyond their own means.
However, what we are saying is that you should not take out a mortgage which is beyond your repayment limits, just for the sake of the possibility of a few quick dollars.