2007 Economy: How to Avoid Overextending Yourself

By: Wayne Powell

The Housing Market has come to a halt leaving many homeowners desparate to sell. Variable and Hybrid mortgage rates and payments have risen substantially. Lenders are exiting the market. The unfortunate ones are left in an unfortuante position of being overextended.

Now that it is clearly a buyer's market, prices are starting to decline. Homes are on the market for longer periods. Sellers who can afford to wait it out have taken their homes off th market for now. Others who can't afford to wait areat risk of losing everything to their lender before they can find a buyer.

One big question on everyone's mind is who the housing slump will affect the rest of the economy. Will banks go under similar to the S&L scandle of the 1970's? Or will the economy absorb the slowdown with a mild hickup? One thing is clear at this point; all the major players in the mortgage industry are being hit hard. Already many of th sub-prime lenders have closed thier doors. Some have even filed bankruptcy.

Another question is whether rates will continue to increase. At this point, even a small increase could turn the soft landing into a crash landing. Foreclosure projections for 2007 are expected to increase 50% or more over last year. Higher interest rates will mean even more foreclosures.

The best way to avoid being overextended in this market is to lock in a fixed rate loan now. Fixed rates have bearly moved at all, while variable rates have increased 100% in the last 4 years. You eliminate all risk of rate and payment increases with a 15 or 30 year fixed rate mortgage.

Also, it is best not to consolidate your consumer debt into a mortgage. In the event worst comes to worse and you file a bankruptcy, you can discharge your consumer debt. but you will always have to pay your mortgage lender. make sure you have a roof over your in the future by keeping your unsecured consumer debt unsecured.