The pie chart at right comes from a Bankrate.com survey, sampling 1,000 adults about their current housing situation.
The question asked: What type of mortgage do you currently have?
While the 34% “Don’t Know” figure is troubling, even more frightening is the 6% “ARM” figure.
The sample size was small, but far more than 6% of homeowners carry adjustable rate mortgages. Some of the survey responders may have mistaken their “5-year fixed rate mortgage” for a true fixed rate mortgage — even though they are aware that the rate can change after 60 months.
According to the Federal Reserve, ARM holders tend to be unaware of how often their home loan can adjust, the maximum interest rate to which it can adjust, or even the rules by which the new, adjusted interest rate is calculated. That all can lead to financial stress in a household.
If you own a home, you need to understand the basic structure of your own mortgage the same way that you need to balance your checkbook each month. Even if you have a fixed rate mortgage — you may be mistaken, after all.
It’s never too late to look over your mortgage statement or reviewing your closing documents. If you don’t know how to interpret what you’re reading, get help from a professional.