Because of the popularity of mortgage options allowing borrowers to enjoy low initial payments, many people are able to purchase homes. Although lenders recognize the problem affecting many first time homebuyers and moderate income families, and are willing to accommodate their buying needs, some creative mortgage options are risky.

Low mortgage payments appeal to everyone. Regrettably, rates are temporary. With this said, borrowers should not allow themselves to be unknowingly lured by introductory mortgage rates. Once the teaser rate for an adjustable rate mortgage ("ARM") ends, or the time comes to begin making payments toward the principal on an interest-only mortgage loan, monthly payments will rise.

When choosing an ARM, borrowers should appreciate that their mortgage payments could increase significantly after the initial teaser rate period expires. Borrowers may be able to avoid a huge payment increase on an interest-only mortgage if they make periodic payments to reduce the principal balance, or select a short interest-only period.

In an effort to prepare borrowers for potential payment increases, mortgage companies typically supply a "worst case scenario" sheet. With an adjustable rate mortgage, the loan usually includes an interest rate ceiling. In other words, the rate on these loans cannot exceed a maximum cap. Rarely does a borrower reach their interest rate ceiling. Nonetheless, they should prepare for the possibility. A "worst case scenario" sheet will provide borrowers with a detailed payment schedule. Thus, borrowers are aware of each future adjustment date, and are given an idea of what their monthly payments will be at varying interest rates.

"Worst case scenarios" are also offered to borrowers choosing an interest-only mortgage. In many housing markets, interest-only is the only way to afford a basic or modest home. To help borrowers avoid payment shock, a future payment schedule is provided, in which borrowers are provided a general idea of possible payments once the interest-only period concluded.