JACKSONVILLE, Fla. – Thousands of homeowners with adjustable-rate mortgages are expected to see their monthly payments skyrocket this year.
And there are concerns that many homebuyers will no longer be able to afford their mortgages when their rates reset.
But one expert said that doesn’t mean there will be a repeat of the 2008 housing market crash.
“A lot of people hear the term adjustable rate and they run in the other direction,” said Charles Bobola, a home loan specialist with Heroes First.
Adjustable-rate mortgages were a risk that hundreds of thousands of people took in 2019 just before the Coronavirus pandemic when the U.S. saw the lowest 30-year mortgage rates in history.
“Interest rates in 2019, were on the rise, we were seeing 5%, even 6%,” Bobola said.
Bobola said homeowners who want to avoid paying higher interest rates typically take advantage of adjustable-rate mortgages to get a low rate for a fixed period.
“So if you had a five-one adjustable rate mortgage, your interest rate was fixed for the first five years, and then it is allowed to adjust every year thereafter. And so what we’re seeing is some of those adjustable rate mortgages that were taken out in 2019, in 2024, that adjustment period is coming,” he said.
About 1.7 million homes were bought in 2019 using adjustable-rate mortgages, according to data from Intercontinental Exchange.
On average, those homeowners may have had interest rates of 3.5% or lower.
Today, the average 30-year-fixed mortgage rate is 7%. That means thousands of homeowners are expecting significantly higher monthly payments this year.
“The mortgage payment is going to be dependent upon obviously, the interest rate that they have, and the amount that they borrowed. But worst case scenario, if somebody were to have, let’s say, 2% adjustment on a $300,000 loan, that would be about $375 a month,” Bobola said.
With a much higher cost of living post-pandemic, there are concerns that even a $400 difference could spell trouble for the economy, much like it did during the mortgage crisis of 2008 when homebuyers could no longer afford their mortgage payments when their rates reset.
News4JAX asked Joe Krier, a wealth advisor with decades of experience in finance, for his take. He said he doesn’t expect a repeat of 2008.
“You know, in 2008, what was happening was, banks were issuing mortgages very easily without the underwriting standards that we have today. So they’re a little more protected. And when they issue a mortgage, whether it’s adjustable or not, they’re planning on sort of a worst-case scenario with the borrower there,” Krier said.