The Associated Press

WASHINGTON - Lower-income and minority consumers are most likely to choose adjustable-rate home mortgages over fixed-rate loans, yet also are especially likely to be hurt by rising interest rates - a risk of such loans that they may not appreciate, according to a survey released Monday.

By contrast, about two-thirds of those surveyed in the poll issued by the Consumer Federation of America said they prefer fixed-rate mortgages and appear to be aware of the risk of ARMs, the consumer group said.

Mortgage rates have been rising. Sales of existing homes rose 2.1 percent to a record in June as ascending rates prompted a rush by Americans to close deals before rates went even higher, the National Association of Realtors reported Monday.

In fact, rates have backtracked a bit in recent weeks, with the 30-year mortgage falling to 5.98 percent last week, the first time it has been below 6 percent in three months.

Adjustable-rate mortgages traditionally have been favored by more affluent consumers who can afford mortgage rate increases, Consumer Federation noted. But ARMs now are chosen by more than 30 percent of home buyers and some lenders are marketing them to all potential buyers, regardless of income or assets, the group said.

"Lenders who aggressively market ARMs to lower-income consumers and those with low credit scores are acting irresponsibly," said Stephen Brobeck, the group's executive director. "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."

Spokesmen for the Mortgage Bankers Association had no immediate comment.

Consumers have a number of options to lower their borrowing costs. They can pay points up-front to buy down, or lock in, a mortgage rate. A point is usually 1 percent of the loan amount. Or they can choose ARMs, which carry a lower rate but at some risk.

The most popular ARMs are the hybrid versions in which adjustable rates kick in after a fixed rate for the first three to 10 years.

If you're thinking of staying only seven years, about the average time people spend in a home, getting a 30-year fixed rate may not be the best idea. Five-year and seven-year ARMs have over the past year been running about 1 percentage point below the 30-year rate.

If you get a loan for $200,000 at a 30-year fixed rate of 6 percent, you are paying a monthly mortgage of $1,199.10. But by getting a seven-year ARM at, say, 5 percent, you'll have a monthly payment of $1,073.64 and save $125.46 a month.

The survey of 1,015 adults was conducted from July 8-11. The margin of error is plus or minus 3 percentage points.

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.