Scary days could be ahead for adjustable-rate mortgages

 

Short-term interest rates have been rising steadily since they dipped to record lows last spring.  According to Freddie Mac, the average initital rate for a one-year ARM is now 4.33%, up from  3.46% a year ago, which means many folks are going to have to dig a litter deeper to pay the monthly mortgage bill. 

 

Although most ARMs contain caps on how much their rates can increase each year, these adjustmens can still be painful.

 

Many borrowers who took out a one-year ARM at 3.5% last year will see their rate adjust to about 5.5% this year according to Keith Gumbineger, who is vice president of HSH Associates, which a mortgage-consulting firm.  On a $250,000 mortgage, that works out to an additional $297 a month.  On a $350,000 loan, this works out to $ 416 per month.