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Not Adjusted to Rate

June 01, 1986

Re Kirk Hallahan's letter (May 18), in which he mentions the attributes of adjustable mortgage rates:

Although we do have an adjustable rate mortgage with Great Western, we were not among that lender's 50,000 ARM holders Hallahan cited whose interest rates and payments have allegedly fallen.

We obtained our loan during the summer of 1984, when the best ARM started at 11%, with a "fixed" payment for three years. Quotations are used because although the payment did remain the same, if the interest rate went up, we were stuck with negative amortization, which meant that if we didn't pay extra (according to the increased interest rate), we would have to pay the accumulated negative amortization at the end of three years.

A mini-balloon payment we did not want, so we paid the extra amount and thus, what we thought would be a steady ARM rate, was really a fluctuating number, only to go higher, never lower. Even though interest rates have gone down, our payment has not and never will, due to the fact that such a provision was not in our contract.

Because of the sense of insecurity that the ARM gives us, along with the knowledge that our interest rate could conceivably rise to over 16%, we have opted to refinance for a fixed-rate mortgage. We can only conclude that ARMs are a marketing scam used to sucker unsuspecting first-home buyers, like ourselves.

RON & ANNETTE HALPERN

Los Angeles

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