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interest only mortgage can be a problem

Federal Reserve Chairman Alan Greenspan is the latest to pan interest only mortgages. Speaking in front of Congress Greenspan said that many homeowners could be in for an "individual disaster" if home prices come down from record highs. He singled out interest only mortgages as a real problem.

The product\'s sales have more than doubled nationwide allowing folks to buy homes at a time when property values continue to soar. The product permits the buyer to pay only the interest part of a loan for a set period saving on the principle. Financial experts and economists have said the product could lead to increased foreclosures in the future.

Why? Once the interest only part of the loan expires monthly payments rise beyond what the payment of a 30-year fixed-rate mortgage would have been. Quite a few banks offer the product which one certified financial planner calls a ticking time bomb."There are too many consumers that have taken on mortgages that they simply cant afford " said J.J. Burns founder of J.J. Burns & Co. an investment management and financial planning firm. "When the time comes to begin paying off principal on the loan the size of the payments will force many people into foreclosure on their homes." Burns added that it might only be a matter of time before the housing market and the interest rate environment turns against the consumer. In places where home prices are at all-time highs interest only mortgages might be the only way some people can afford to buy homes. (This article originally ran in Long Island Business News Long Island NY another Dolan Media publication).

Interest only mortgages are not for everyone and you should take independent advice.

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