Adjustable Rate Blues
As interest rates have been ticking up, the analysts have started to calculate what that will mean to those with adjustable rate mortgages. From BankRate.com, "A one-year ARM for $200,000 that adjusts by 2 percentage points sees the monthly payment increase by approximately $230."
"How about those pervasively marketed Option ARMs that permit borrowers to choose which monthly payment they wish to make? A similar increase in rates would drive the interest-only payment on a $200,000 loan up by $333. The danger, of course, is that with such a loan the borrower could instead make the more-affordable minimum payments that actually push the balance higher."
Anyone following the market knows that in the really hot areas, $200,000 doesn't buy very much. We should expect to see headlines like, "Honey, I Shrank Our Standard Of Living."