Ahhh the good old days, when rates were low, applications were a breeze, money was flowing like water and homes were selling like hotcakes. Remember those good old days? Well they may be gone for now but they will return.....someday. In the meantime we have to live with the cards we got. And a lot of folks have some pretty bad cards.

Interest rates are up, home prices/values are falling, lending requirements are tightening up, ARM's are tightening and foreclosures are up. My home state of Colorado continues to lead the country in that category. Not a pretty picture.

There were four mortgage schemes that were just fine until.....the cows came home.

1.Interest Only Mortgages-For many first time buyers this looked like an attractive deal until....Home values start dropping and the borrower finds out he has very little if any equity. If the borrower makes it thru the interest only period of the loan and he finds the real payment with a slight premium may break their piggy bank-causing possible default. When it comes time to sell the borrower may be upside down-he owes more then the home is worth.

2.ARMs These were just fine as long as rates stayed the same and low. Problem is they don't and won't. After the initial year or three year period owners of ARM's were subject to the whims of a highly volatile market where rates can and do change like the wind. Having your rates and payments change regularly is not only stressful on a budget but can be a backbreaker and may be the biggest cause of high foreclosures.

3.Cash Outs Wow, you mean we can buy the home of our dreams and get money back too-up to 25% of the value. How cool is that? Well Mr. Na've borrower it is cool as long as values keep going up and you can afford the payments. There is a price for everything. Again when time comes to sell for whatever the reason the borrower is more than likely going to owe more than the home is worth. How cool is that?

4.Fixed Rate Loans Whoa you say, the staple of the biz. I am not talking about the 30 year fixed rate loan. How about the 40 and 50 year garden variety. This brain child has come a close second to the interest only loan in terms of equity build up-close to zero. So in a market where values are falling with no equity building, the borrower ends up in trouble.

Moral of the story, there are many ways to finance the purchase of your home but only one way to make the payments. It is much better to play safe than loose and fancy free when it comes to your biggest asset-your home.