Many Americans with adjustable-rate mortgage loans about to face higher monthly payments

FILE-A sold sign is seen in front of a recently purchased home in San Francisco, California. (Photo by Justin Sullivan/Getty Images)

Most homeowners in the U.S. who took out adjustable-rate mortgage loans are likely to see a spike in their monthly payments soon. 

Adjustable-rate mortgages (ARM) are loans with an interest rate that will change throughout the life of the mortgage, meaning monthly payments may go up or down over time, according to mortgage buyer Freddie Mac

ARMs have an initial period, which means the loan adjusts and the interest rate changes, and an adjustment period, how often an interest rate changes based on the loan terms and the current market.

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Bloomberg reported that 1.7 million homeowners have purchased houses with adjustable-rate mortgages since 2019. People who bought the five-year ARMs could see higher monthly payments on their loans in 2024. 

The financial data media organization released a recent poll noting that approximately 70% of adjustable-rate mortgage holders say they’re concerned about making their new monthly mortgage payments given rising interest rates. Meanwhile, one in 10 respondents admit they may delay or default on their mortgage once it adjusts. 

Citing Bankrate, Newsweek noted that adjustable-rate mortgages for five years are around 6.5%, nearly double the rate several years ago. This means a homeowner who bought a new ARM loan would pay $1,000 more for their mortgage payments. 

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Homeowners facing the reality of paying more for their mortgage monthly due to their ARMs is making news as rates on 30-year mortgages average 7% in 2024 amid high inflation, the Associated Press reported, citing Freddie Mac. 

These higher mortgage rates create challenges for homeowners who bought or refinanced their house over two years ago to sell because they don't want to give up their fixed-rate mortgages below 3% or 4%. 

The Associated Press contributed to this report. This story was reported from Washington, D.C.