ARMS: $1 Trillion Still to Reset

In: Housing Source: Ritholtz US Economy

9 Mar 2010

Borrowers who already have seen their ARMs reset might be sitting on their hands and not refinancing into fixed-rate products, McBride said. Because mortgage rates have been so low recently, resets can actually lower, not raise, monthly payments. When that happens, borrowers might feel little urge to refinance into a fixed-rate product that would cost more per month. Alternatively, ARM borrowers might simply struggle to qualify for a refinance because of low or negative equity.

The problem, McBride said, is that when interest rates increase – which many analysts expect to happen over the next year – borrowers’ monthly payments might increase beyond what is affordable for them. And at that point, the fixed-rate products will no longer be attractive, or even financially viable, options.

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