The new mortgage risk.

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Author: Ashford, Kate

With home prices soaring, banks have come up with a new kind of mortgage, designed to keep your initial monthly payments low. But beware: Interest-only, adjustable rate loans can get you into trouble.

The upside: You'll pay no principal for a period of three to ten years. So you'll pay less per month than you would with a traditional mortgage--helping you afford a more expensive home.

Yet interest-only mortgages can really cost you in the long run, say consumer-finance experts. Here's why:

SKYROCKETING PAYMENTS After the interest-only period expires and you start paying off principal and interest, the monthly payment may increase by as much as 40 percent. On a $350,000 loan with a 4.8 percent interest rate, for example, a $1,400 monthly payment would jump to $1,929 after three years of interest-only payments. If interest rates rise, your payments could increase even more.

NO ROOM TO MANEUVER By not paying principal, you avoid building equity in your home. Without that cushion, you may find you owe more than your home's value if real estate prices in your area drop at a time when you have to sell.

A BETTER ALTERNATIVE If you're stretching to buy that dream house--and you think your income will rise over the next few years--consider a five-year traditional adjustable rate mortgage. Currently, adjustables offer rates about 1 percentage point below what fixed mortgages offer. You'll also be paying off principal, as well as interest, so you'll be building equity.

These offers--on everything from computer printers to toaster ovens--sound great…until you actually try to claim one. The paperwork and red tape can be quite a hassle. Here's how to get the money that's rightfully yours.

• READ THE FINE PRINT. Be sure you have your receipt, completed rebate form, UPC code, and anything else the offer requires. Make copies, and send the originals by Registered Mail (request a return receipt) well before the deadline. That way, you'll have proof that you filed on time.

• GET AN EXTRA STORE RECEIPT. Keep an original receipt in your records--it'll come in handy if you need to track down or resubmit a claim. So ask for a duplicate when you buy.

• WRITE CLEARLY. An illegible form is a common explanation for rejected rebates. Try printing in all capital letters; they can be easier to read than regular handwriting.

• COMPLAIN. If you don't receive your check by the date specified in the offer, take action and contact the company (most rebate forms list a phone number or Web site). If that doesn't work, write to the Federal Trade Commission (www.ftc.gov), your state attorney general's office, and the Better Business Bureau (www.bbb.org), and send a copy to the company in question. It may speed up your payment.

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By Kate Ashford