Millions of American homeowners with adjustable-rate mortgages (ARMs) are about to experience higher monthly payments, potentially straining their finances.
Adjustable-rate mortgages, or ARMs, come with interest rates that fluctuate over the life of the loan, leading to changes in monthly payments. According to mortgage buyer Freddie Mac, ARMs have an initial period where the interest rate is fixed, followed by an adjustment period during which the rate varies based on market conditions.
Bloomberg reports that 1.7 million homeowners have taken out ARMs since 2019. Those who opted for five-year ARMs are likely to see their payments increase in 2024. A recent survey by a financial data organization indicates that about 70% of ARM holders are concerned about meeting their new monthly payments amid rising interest rates. Additionally, 10% of respondents expressed the possibility of delaying or defaulting on their mortgage once the rate adjusts.
Citing Bankrate, Newsweek reported that the current rate for five-year ARMs is around 6.5%, nearly double the rate from several years ago. This rise means homeowners with new ARMs could face an additional $1,000 in monthly mortgage payments.
According to the Associated Press, which cited Freddie Mac, the average rate for 30-year fixed mortgages in 2024 is approximately 7%, influenced by high inflation. This scenario poses a challenge for homeowners who bought or refinanced their homes at fixed rates below 3% or 4% over the past two years, as they are hesitant to sell and lose these advantageous terms.
As interest rates continue to climb, homeowners with adjustable-rate mortgages must prepare for the financial impact of increased monthly payments, highlighting the need for careful financial planning and adjustment.