Financial Update (Fourth Quarter 2006)
Homing in on risks
To help consumers make more informed choices, the federal bank, thrift, and credit union regulatory agencies have published a new resource, Interest-Only Mortgage Payments and Payment-Option ARMs—Are They for You? The publication warns of the risks consumers may face with certain mortgage products and urges borrowers to be realistic about whether they can handle future payment increases.
The publication suggests that if consumers are not comfortable with a loan's associated risks, they should ask about other mortgage products. It also contains a list of questions and answers about various types of mortgage loan products.
Knowledge is power
The brochure emphasizes the need to understand mortgage loan terms such as payment shock (for example, the expiration of a temporary interest rate cap) and negative amortization (when monthly payments don't cover all the interest owed, thus increasing the balance owed each month).
How loans may perform
To illustrate how different types of mortgage loans perform over time, the publication compares the costs of a $180,000 mortgage loan under five scenarios: fixed-rate, fixed-rate interest-only, and three types of ARMs.
Financial organizations can "own" the information
A downloadable version of the publication is available so interested groups can print copies for their use. This version includes space for organizations to include their own contact information. Single copies of the brochure are available free of charge from the Federal Reserve Board, Publications, Mail Stop 127, 20th and C Streets, N.W., Washington, D.C. 20551.