For Some, the Painful Reality of Adjustable Mortgages Looms

Homeowners who locked in low adjustable-rate mortgages a few years ago are now getting a costly reminder of the fine print. With interest rates near their highest levels in years, some borrowers are watching their ARMs reset from below 3% to something closer to 8%, adding hundreds or even thousands to their monthly payments. One Minneapolis borrower's bill is set to jump from $6,800 to $9,300 in January.

The Wall Street Journal details the scope of the issue: Roughly 186,000 ARMs will reset next year, with a typical initial payment increase of about $645, according to Intercontinental Exchange. ARMs remain a small share of active mortgages—around 5%—and today's versions come with more safeguards than the loans that helped fuel the 2008 crash. But it will still be painful for some. Per the Journal, "the largest category consists of people who took out seven-year fixed-period adjustable rate mortgages in 2020. They face a median monthly payment increase of 43%, or $1,269 a month."