ARM101607

Adjustable rates still a mystery to many, study says

Adjustable mortgages are hazy to many who have them, a survey finds.

By H.J. Cummins, Star Tribune

Last update: October 15, 2007 - 8:13 PM

Nearly half of homeowners with adjustable rate mortgages don't know exactly how they work, according to a national survey released Monday by the AFL-CIO.

Three-fourths also couldn't say what their new monthly mortgage payments will be after an interest rate reset, according to the survey of 500 homeowners who took adjustable-rate mortgages (ARMs) from 2002 to 2006.

"We decided to take a look at how people are feeling and what they understand, and you can see from the survey [that] they don't understand a lot," said Scott Treibitz, spokesman for the labor organization, which also announced a financial help line for members of any union troubled about their mortgages.

National attention has focused on ARMs recently because 2 million of them are expected to reset by next year, increasing the nation's already high rate of foreclosures. ARMs typically start with a low, introductory interest rate, and then climb over time.

Those in the AFL-CIO survey mostly felt their lenders hadn't been dishonest, Treibitz said. But what they didn't hear -- and didn't know to ask -- was what their new monthly payments would be when their rates go up.

"You're told your rate could go up as high as two points a year, but what does that mean?" he said.

That's why one new government requirement the AFL-CIO is likely to seek is up-front disclosure of those potential payment changes, he said.

Other survey findings:

• 37 percent of those whose ARMs had reset once had interest rates of 8 percent or higher, above the current 6.40 percent average for 30-year fixed-rate mortgages.

• The average monthly increase, after the reset, was $291, eating up 10 percent of the after-tax incomes of homeowners who earn $50,000 a year.

The AFL-CIO's new Save My Home Hotline is: 1-866-490-5361.

The survey's margin of error was plus or minus 4.4 percentage points.

H.J. Cummins • 612-673-4671

H.J. Cummins • hcummins@startribune.com