Released: June 03, 2007

Option ARM rife with pitfalls for borrowers

Source: Kathy M. Kristof, Arizona Daily Star

For Los Angeles newlyweds Joseph and Jamie Horton, the deal looked too good to pass up: a mortgage with an initial 1.75 percent interest rate and payments that wouldn’t change for five years.

The Hortons figured that with all the money they would save on interest payments, they would be able to pay down a significant chunk of the principal on their loan. So they signed on the dotted line.

But after a month, the actual interest rate on their “option” ARM shot above 8 percent. They blithely made the minimum payment each month, not realizing, they say, that the low rate they had secured was so fleeting. Within months, thousands of dollars in unpaid interest was added to their loan balance.

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