What are some loans to be wary of?

What are some loans to be wary of?

Mitchell Freedman, CPA/PFS (CEO, MFAC Financial Advisors) gives expert video advice on: Where can I get a loan?; Are credit union loan rates always lower than bank loan rates?; How can I borrow money to buy a car? and more...

As a result of the recent runup in real estate prices, we've seen individuals borrow money on terms that may end up really hurting them. There are such things as come-on interest rates for mortgages, where for the first several months or year there's a very, very low interest rate. But then, as the interest rate adjusts to the current market, the payments can go up hundreds of dollars a month and the buyers of the home may find themselves in a situation where they can't afford to make the payments anymore and they have to end up either selling the property prematurely or maybe even losing the property to forclosure. In addition, there are some loans that are have what's called negative amardization, or the acronym in neg-am. And with negative amardization, the payment remains low, but interest continues to accrue on the loan over and above what the minimum payments are, and that interest that's unpaid actually gets added to the principal, so that every day that an individual is borrowing the money and paying off the loan, the loan balance continues to increase. And we're seeing that a lot of people who were stretched into buying homes during the recent rise in prices are having to deal with these loans now.