American homeowners are better informed about their mortgages than they were a year ago, but many remain ignorant. More than one in four (26 percent) still don't know the exact nature of their home loan.
However, more homeowners report having fixed-rate mortgages this year than last year.
These findings were part of a GfK Roper random survey of homeowners and others. Bankrate commissioned the study of Americans' attitudes about borrowing as part of our Financial Literacy series.
In last year's survey, 34 percent of poll respondents said they did not know what type of mortgage they had. The number dropped by 8 percentage points in this year's survey.
"I am pleased to see that number down, but it is still too high," says Kim McGrigg, a spokeswoman for Money Management International, a nonprofit national group that counsels consumers about homeownership and credit.
|Adjustable-rate mortgage, or ARM||7%||6%|
Foreclosures foreshadow responsesGreg McBride, Bankrate's senior financial analyst, says he is not surprised that large numbers of Americans continue to confess ignorance about the nature of their mortgages.
"Last year it was surprising, but not this year," McBride says. "Look no further than the number of foreclosures."
"Many of today's distressed homeowners didn't know what they were signing for at the loan closing. Even those that did know what type of loan (they were getting) didn't know enough specifics and were blindsided by big payment increases."
Others were taken aback by the results. Ellen Frank, senior economic analyst at The Poverty Institute at Rhode Island College, School of Social Work, expressed surprise that so many poll respondents still do not fully understand the details of their home loans.
"On the other hand, we have to realize that large investors didn't know the default rates on mortgages in the securities they held," she says, referring to institutional investors who should know better. "Ignorance and herd-like behavior is pretty much ubiquitous in financial markets."
Homeowners seek securityNew this year: A greater percentage of poll respondents report having fixed-rate mortgages. In the latest poll, 65 percent of respondents said they have fixed-rate mortgages, up from 57 percent in 2007.
McGrigg believes many consumers are moving to fixed-rate mortgages to eliminate the element of risk that is built into adjustable-rate financing.