Loretta Abrams, Vice President of Consumer Affairs, HSBC-North America, offers tips for home buyers. The most significant is know what you're getting into! What are the terms of the loan? Few people seem to grasp there's anything important besides the amount of the required down payment and the beginning interest rate!

If the rate is adjustable, when does it adjust (reset)? What is the cap on the adjustment; in other words, how high can it go and when? That's besides the whole issue of  how mortgage interest stacks up through compounding!

A gentleman called me yesterday to ask whether he should take a fixed or adjustable rate. I asked him what the difference between the two rates was. He said "one-quarter of a percent." Of course I told him to take the fixed rate. "But, but…" Turns out he didn't know what the difference was, though he believed the adjustable rate was low enough to allow him to maintain two house payments for awhile.

The other blind spot I see frequently is understanding prepayment penalties. Often there aren't any, but most people I ask have no idea about theirs. (Sometimes there's a penalty for paying off the entire loan within the first three years, for example, or for paying more than 20% of the principal back in any one year…these things vary and should always be confirmed with the lender.)

In early childhood we’re taught to look before crossing the street—look both ways. Three looks, actually: right, left, then a quick right again. The same lesson is stressed when we learn to drive a car. We’re also taught to look ahead, peer down the road and anticipate what’s coming. We might not be in the mortgage crisis we’re in today had we all kept on looking both ways and looking ahead!