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Apparently, America doesn’t know their mortgages at all. Dan Green, at the excellent blog The Mortgage Reports, highlights a recent Bankrate.com survey that shows 34% of Americans don’t know what type of mortgage they have. More alarmingly, is the amount of fixed-rate mortgage respondents. As Dan puts it:
It’s the 57% "Fixed Rate" figure that scares me.
The sample size was small, but there is no way that 57% of homeowners carry fixed rate mortgages (even though they think they do). A "5-year fixed rate mortgage" is not really a fixed rate mortgage — it’s an ARM in which the interest rate remains fixed for 5 years. Some folks, unfortunately, don’t (or can’t) make that distinction.
These people have been lulled into a sense of security about their mortgage.
This is a big problem. If people don’t know their risks they cannot plan for changing mortgage payments, etc. This unforeseen payment shock will affect many families who current think the subprime mess "doesn’t apply" to them because they are safe and secure in a fixed rate loan.
I know a surgeon who told me she was getting a fixed rate mortgage, but when I questioned her further I found out it was a 5 year ARM. She said it’s fixed, fixed for 5 years. This lady is real smart, but not adept at financial things at all.
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