Homeowners opting for variable rate mortgages over fixed rate mortgages tend to have lower incomes and fewer assets, according to a survey by the Federal Home Loan Bank Board.
The FHLBB survey also concluded that holders of VRMs were less satisfied with their mortgages than FRM homeowners and were less inclined to chose the VRM the next time around.
VRMs are loans whose interest rates (and hence monthly payments) go up or down - usually within set limits - as market rates change. They are introduced in California on a widescale basis in early 1975 by banks and thrift institutions, including the Bank of America and Wells Fargo.
Washington's American Security Bank this week began offering variable rate mortgages on singlefamily homes in the city, the only large commercial bank outside of California to do so.
Meanwhile, the Federal Home Loan Bank Board is considering whether to allow savings and loan associations nationwide to offer VRMs. Lenders contend VRMs provide a steady source of mortgage funds and make it easier to assume existing mortgages. Consumer groups contend that VRMs would tend to raise mortgage rates, and would therefore discriminate against low income and minority home buyers.
Responses to the survey were received from 1,255 individuals, divided almost equally between those with VRMs, and those with FRMs who obtained them before VRMs became available and those who opted for FRMs after VRMs came on the market. Some renters were also included in the survey.
Forty-five per cent of those who had variable rate mortgages reported incomes of $20,000 or less, compared with only 35 per cent of those with fixed rate mortgages. Twenty-three per cent of the FRM holders had incomes of over $30,000, compared with 15 per cent of the VRM holders.
Both groups were overwhelmingly white - 85 per cent of the FRM househols and 83 pr cent of VRM owners. Only 2 per cent were either black or Indian. There was no significant difference in educational levels.
As might be expected, both FRM and VRM users ranked interest rates and the size of monthly payments as the most important features of their mortgages. But the FRM group rated stability of monthly payments third while the FRM group ranked it fifth.
It was noted that mortgage rates of VRMs had gone neither up nor down since their introduction in 1975, Yet, only 40 per cent of the VRM owners said they would choose the same plan again. The principal reasons given were that VRMs offered no advantage to the borrower, that there is less anxiety with stable monthl* y payments and that FRMs protect against interest rate increases.
"This suggests," according to National Thrift News' summary of the survey, "that VRMs are neither as anticonsumer as argued by some critics, nor as favorable to consumers as claimed by the industry."