The Perils of Adjustable Rate Mortgages
Posted by Advantage Real Estate on
The Perils of Adjustable Rate Mortgages
While adjustable rate mortgages entice borrowers with attractively low initial rates, they carry significant risks that can derail financial stability and even lead to foreclosure in worst-case scenarios.
Payment Shock: When Your Mortgage Becomes Unaffordable
The most immediate and severe peril of ARMs is the potential for dramatic payment increases when the adjustment period begins. Consider this scenario: a borrower with a $300,000 5/1 ARM at an initial 3.5% rate would pay approximately $1,347 monthly. If rates rise to 6.5% after the fixed period, that payment jumps to $1,896—a $549 monthly increase that many household budgets simply cannot absorb.
This payment shock can be even more severe with…
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