I suppose it shouldn't be a surprise but it appears that a lot of home owners do not understand the terms of their mortgages or what could happen to them. It is sad but I think this means that there are a number of people who are going to get into trouble when rates go up again.
It is also understandable since there isnt anyone out there to educate consumers; everyone you are likely to interact with when buying a house makes money from your purchase. There is not much money to be made in restraint.
This data is from 2001 and the number of people with ARMs is almost 3x higher than it was then.
The Home-Mortgage Muddle Some Borrowers Are Confused By Terms of Adjustable-Rate Loans
March 11, 2006
Many Americans are confused about the terms of their adjustable-rate home mortgages and underestimate the amount by which their loan payments could jump, according to a new study by Federal Reserve Board economists.
The study found that about 35% of people with adjustable-rate mortgages didn't know how much the rate could increase at one time, and 41% weren't sure of the maximum rate they could face. About 28% didn't know which index of interest rates would be used to determine their adjustments; many others gave incorrect answers, such as the consumer price index or "the going rate."
Borrowers who take such loans often don't fully understand the risks of eventual leaps in their monthly payments, says Stella Adams, executive director of the North Carolina Fair Housing Center, a nonprofit group that helps low-income people with housing problems.
"What they're told [by loan officers and brokers] is, 'Don't worry about it because you can refinance before the adjustment hits,' " Ms. Adams says. But that isn't always possible for borrowers with heavy debt loads and little equity in their homes. Part of the problem, she says, is that borrowers are too trusting: "Consumers think that if the broker says I can afford this, [then] I can afford this."
Another problem is that borrowers often choose their loans largely based on the initial monthly payments rather than carefully studying which loan would be in their best long-term interests.
