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(NewsNation) — It’s not expected to be as bad as 2007, but hundreds of thousands of homeowners will soon face significantly higher mortgage payments due to their adjustable-rate mortgages.
About 1.7 million homes were bought in 2019 using ARMs. Many were “5/1” loans: five years of a lower fixed interest rate, then a conversion to a market-based rate that’s adjusted once or twice a year.
That means a mortgage based on a 2019 interest rate of 3.5% or even lower may balloon to around 6.5%. And that is a significantly higher monthly payment that many people can’t afford.
According to a poll for Bloomberg conducted by CivicScience Inc., around 10% of ARM holders said they could fail to meet their obligations or postpone their mortgage payments when their ARM adjusts to market rates.
While the clock is ticking on 5-year-old ARMs, home buyers looking for any kind of bargain are still acquiring new ARMs. With the 30-year fixed mortgage rate at around 7% this week, an ARM in the mid-6% can be the difference between affording and not affording a house right now.
And, since the Great Recession, regulators put caps on how much lenders may raise ARM rates.
Read More: Millions face higher house payments as adjustable-rate mortgages convert