WASHINGTON – A survey recently commissioned by the Consumer Federation of America shows that lower-income and minority consumers are most likely to prefer Adjustable Rate Mortgages but misunderstand the interest rate risks of these types of loans, suggesting that they are "particularly vulnerable" to the risks of ARMs. Historically, states CFA, ARMs were most likely bought by affluent consumers who could afford interest rate increases. But recently ARMs are now the choice of more than 30% of mortgage purchases and they're being marketed by some lenders to all potential buyers, regardless of income or assets. In fact, the CFA survey showed fixed rate mortgages are preferred by 76% of those with incomes over $75,000; by 70% of college graduates; and by 75% of those between ages 45-64. Even more disturbing, said the report, subprime borrowers are more than twice as likely as those with high credit scores to purchase ARMs. Despite the increasing popularity of ARMs, the CFA survey also showed that a large majority of consumers said they would prefer a fixed rate mortgage if they were going to purchase a home in the next month, and 92% of those who preferred ARMs indicated "the security of knowing how much my mortgage payments will be throughout the terms of the mortgage" as being "very important." Other responses to that question chosen as being "very important" factors included 88% of respondents indicated "with an ARM, I would be concerned that mortgage interest rates would rise, and I would end up paying more interest," and 81% said "with an ARM, I would be concerned that mortgage interest rates would rise, and I would not be able to afford higher monthly payments." A profile of the 25% of consumers who indicated they prefer ARMs show they're younger, poorer, and less well-educated than those who prefer fixed-rate mortgages: * 32% of those 18-24 years old, but only 19% of those 45-64, prefer ARMs; * 33% of those with less than $25,000 in income prefer ARMs, compared to only 20% of those with incomes over $50,000; * 26% of those with only a high school degree prefer ARMs, but only 21% of college grads do so. In addition, the survey results showed 37% of Hispanics and 31% of African Americans prefer ARMs, but only 23% of whites do so. Overall, says CFA, the survey findings indicate the fact that Americans with the least experience in the marketplace and the least education are the most likely to prefer ARMs suggests that lack of financial knowledge is associated with a preference for ARMs. -

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