More than 100,000 homeowners in the United States are likely to get slammed with higher monthly mortgage payments as the fixed period for adjustable-rate mortgage (ARM) loans resets this year.
At least 102,000 ARMs are expected to reset this year, according to CNN Business, citing data from Intercontinental Exchange. With mortgage rates remaining elevated, homeowners who took out ARMs are likely to graduate into significantly higher monthly payments.
The fixed period on the ARMs for 328,000 homeowners has already been reset, the report noted.
What Is an Adjustable-Rate Mortgage Loan?
An adjustable-rate mortgage loan is a type of home loan where the interest rate can change over time. It typically starts with a fixed interest rate for an initial period, often three, five, or seven years. After this initial period, the rate can go up or down based on market conditions, usually adjusting once a year. This can benefit homeowners as they would likely pay less if mortgage rates decrease.
To protect borrowers from extreme increases, ARMs usually have caps that limit how much the rate can rise each time it adjusts and over the entire life of the loan.
ARM loans gained a bad reputation following the Great Recession in 2007 and 2008. At the time, many homeowners were unable to afford their mortgage payments after the rates reset.
What Are the Current Mortgage Rates?
Mortgage rates change daily. However, the contract rate for a 30-year fixed-rate mortgage is 6.990% as of July 1, while the rate on a 15-year mortgage is 6.125%, per Fox Business, using data from personal finance marketplace Credible.
The World Bank previously predicted that mortgage rates would decline over the next two years as long as inflation rates cool.
"By the end of 2026, borrowing rates are expected to have declined substantially as inflation returns close to target," the World Bank said in a report.
A separate forecast from Fannie Mae predicted that mortgage rates for the 30-year fixed-term are likely to drop to 6.6% by the end of 2024 and decline to 5.9% by the end of next year. A forecast from the Mortgage Bankers Association said the contract rate for the 30-year term would drop to 5.9% in the second quarter of 2025.
