Interest Rates

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Good Morning. Readers here often criticize borrowers who don’t understand their mortgages, but have a little sympathy: these loans are designed to confuse the borrower, and often succeed. That’s the point of Kathy Kristof’s takeout today on a couple who took out an Option ARM and had no idea what they were getting into.

The ‘teaser’rate was 1.75%, and payments wouldn’t adjust for five years; they had no idea the actual rate on the loan shot up to 8% after a month, and there was a pre-payment penalty of $18,000 if they refinanced.

‘I am embarassed by this,’ said Jamie Horton, the borrower. ‘We are educated and successful people. I can’t believe we were taken in like this.’

The lender, Chevy Chase Bank of Maryland, says terms of the loan were clearly spelled out. The Hortons are suing. Says their lawyer, ‘I challenge anyone to pick up a set of these loan documents and tell me what is going on.’

Comments? Insights? Your thoughts are always welcome.
Photo Credit: Reuters