I worked with a gal last summer who was with her husband processing paperwork to buy a house. I didn't get into incomes with her but tried to explain ARM's and balloon payments to her. I told her I was trying to scare her so they would not get burned. Telling her about that lost money if you can't pay and loose the house. And told her of my experience with interest going from 7% to 21.5% before their run-up ended. It is a simple math problem to keep from being snookered into providing scum with unearned income.
They did not sign the paperwork and I am glad.
I agree with you guys on ARM’s and the dangers of balloon payments. The low interest rates of the last 10-15 years lulled a younger generation into thinking there was no interest rate risk in taking on what is for most people the biggest loan of their lifetimes.
15 and 30-year fixed rate is where you need to be IMHO.