Unfortunately, a new survey commissioned by the Consumer Federation of America (CFA) suggests far too many low-income people and minorities don't understand ARMs.

The CFA survey found that 23 percent of whites prefer ARMs, compared with 37 percent of Hispanics and 31 percent of African-Americans. It found that 33 percent of respondents with annual incomes less than $25,000 said they prefer ARMs to fixed-rate mortgages, compared with 20 percent of those earning more than $50,000.

Here's the problem. Those mostly likely to prefer ARMs (lower-income, young and minority consumers) are also the most likely to misunderstand the interest-rate risks associated with them.

In the survey released this week, less than one-half of those favoring ARMs could articulate why getting this type of mortgage made sense. They didn't know, for example, that an ARM might be appropriate if you don't plan to keep the loan for long or that it's risky if the lower payments are all you can afford long-term.

"Given the high probability of interest rate increases, an adjustable rate loan made to a family which can barely afford the initial monthly payments represents a ticking time bomb," said CFA executive director Stephen Brobeck.

Brobeck said he's disturbed that some lenders are aggressively and "irresponsibly" marketing ARMs to all potential buyers, regardless of income or assets.

Doug Duncan, chief economist of the Mortgage Bankers Association, disagrees. "The survey sort of implies that the lender wants to give the borrower a loan that gets them in trouble and this is not true," Duncan said.

ARMS are popular because they have lower interest rates, which means the payments are lower, says Heather McElrath of the American Bankers Association.

An ARM can also help a home purchaser qualify for a larger loan. And home prices have been rising. The national median existing-home price was $191,800 in June, up 9.6 percent from June 2003 when the median was $175,000, according to the National Association of Realtors.

While I understand Brobeck's concern, I don't think for a minute lenders will curtail their marketing of ARMs to low-income and minority consumers. The housing market is too hot. This product is too popular.

I do agree with Brobeck that lenders should show people worst-case scenarios based on the particulars of their ARM. People need to see in big bold print what their payments would be if interest rates continue to climb and their mortgage payments along with them.

While some ARMs cap interest increases at 2 percentage points annually and 5 percentage points for the life of the mortgage, others do not. Thus, a borrower's mortgage payments could go up by many thousands of dollars, the CFA points out.

Before you sign up for an ARM, read the Federal Reserve Board and Office of Thrift Supervision booklet on adjustable rate mortgages (which can be found at www.federalreserve.gov/pubs/brochures/arms/arms.pdf).