Should You Be Worried About the Mortgage Bubble Bursting?

May 1, 2008 by Elizabeth Potts Weinstein

Most of you have little to worry about … but a few of you may need to take action to avoid potential fall out from fluctuations in interest rates, the availability of credit, and real estate prices, due to the collapse of the high-risk mortgage industry.

Who Should Not Worry?

You are holding your home for at least another 5 years.
You have a fixed rate on your mortgage (i.e., a 30-year fixed rate).
You are investing for the long term (i.e., wealth building and retirement).

Who Should Be Concerned?

You plan to sell your home in the next few months or years, especially if you recently purchased or drew on an equity line. The equity in your home may be less than expected due to lower home prices and your new mortgage may have higher interest rates than you've planned.
You have adjustable interest rate mortgage. If you have a 3/1 or 5/1 ARM, for example, your interest rate may start floating (changing) soon … and you may not be in a position to refinance — due to interest rates or mortgage availability. If so, you need to set aside case now for increase payments.
You invest in rental real estate or short-term flipping of real estate. Fluctuating prices and rental prices may reduce your ability to recoop your investment, much less make a profit.

Don't panic. The first step is to simply review the status and terms of your loans and investments to determine if you potentially have program. If you want to avoid major problems, the secret is to troubleshoot before payments go up. Don't wait until you can't make payments & you are forced to short-sell or be foreclosed upon.

Take Action

Review your mortgage policy to confirm terms. If you have a mortgage that will become adjustable, contact your lender and/or financial advisor to gather your options.