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Mistakes that One Makes with Money III
by: Fiasco Mama
According to Suze Orman, one of the biggest mistakes that one can do is borrowing using an interest-only variable rate mortgage to buy property.

If the only way you can buy a home is to take out an interest-only loan with a low initial teaser rate, then you can't afford that home. And the ultimate bad housing move is to use an Option Adjustable Rate Mortgage that allows you to set a very low payment during the start of the loan that might not even cover your interest costs. If you fall for that trap, you will have a "negative amortization loan." Instead of your loan balance becoming incrementally smaller with each monthly payment, it will actually rise because the lender just shovels the "unpaid" interest onto the balance of the loan. Paying just the interest initially on the mortgage only means that you will need to eventually repay the principal at an accelerated pace. If you have a 30-year loan and you don't pay principal for 10 years, you will then have to repay the entire principal in the final 20 years of the mortgage. And don't fall for the lender's pitch that you will have more income to handle the increase once the principal is due, or that you can refinance. If your career takes an unexpected dip, perhaps your income won't grow as fast as you need it to. And refinancing isn't easy if interest rates increase, or property gains have slowed so you don't have much equity built up. There's no guarantee that you'll be able to handle the higher payments.

Source: Suze Orman