Interest Rate Reset Chart

October 25, 2007 No Comments »

interest rate resets

So you’ve probably heard all about the mortgage rate resets that will occur over the next decade, but now you can see them in colorful graph form.

The graph above, based on Credit Suisse data and recently published by the International Monetary Fund includes everything from negative amortization loans to Alt-A loans to agency-backed loans and prime paper.

It details several types of adjustable-rate mortgages that are due to reset over the next ten years, whether it’s shedding their interest-only option or their ultra-low start rate.

To give you an idea of how bad it could be, adjustable-rate mortgages worth a record $50 billion are scheduled to reset to higher payments this month alone, while roughly 1.3 million subprime ARMs are due to reset between now and the end of 2008.

What’s more frightening is that a recent poll indicated that most borrowers didn’t even realize their mortgages could/would reset, or what exactly it all meant.

Unfortunately, for many borrowers stuck in option-arms and other high-risk adjustable loans, once their interest rates do reset, and monthly mortgage payments rise substantially, many will have little or no equity to bail themselves out.

Interestingly, many loans deemed prime during loan origination and subsequent dumping on the secondary market will in fact be identified as subprime loans once interest rates reset, as many borrowers who got into the loans did so only because the teaser rate was the only affordable payment.

What it all means is that the mortgage crisis is in its infancy, and the consequences of years of loose lending and appreciating home prices will likely be matched with an equal amount of misery.

Related: How mortgage rates are determined.

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