American homeowners have made a trillion-dollar bet that mortgage rates will remain near record lows for at least a few more years. But with some interest rates already rising, economists worry that the bet could turn bad.
The problem is that new types of mortgages that hold down monthly payments for families – helping many buy homes that they would not otherwise be able to afford – also require potentially far higher payments in future years.
The bill will soon start to come due in a serious way, as the initial period of fixed payments, typically set at artificially low rates, expires for millions of homeowners with adjustable-rate mortgages.
This year, only about $80 billion, or 1 percent, of mortgage debt will switch to an adjustable rate based largely on prevailing interest rates, according to an analysis by Deutsche Bank in New York. Next year, some $300 billion of mortgage debt will be similarly adjusted.
But in 2007, the portion will soar, with $1 trillion of the nation’s mortgage debt – or about 12 percent of it – switching to adjustable payments, according to the analysis.
The 2007 adjustments will almost certainly be the largest such turnover that has ever occurred.