EJ, you’re right. I’m not a loan officer, so I was giving vague figures. The principal stays constant, so the effect is actually less than 50% on an ARM, but more than 50% on an IO loan that starts into its principal-repayment period. Many ARMs start out with low teaser rates, at 1%, and then go to 5%. So while my numbers were inaccurate, the general gist is that your payments can go up a lot, up to 70% actually, depending on the loan you have.
Considering that people tend to get the highest payment for which they qualify, a move from $1500 to $1900 is huge. Although many of us would scoff at a $1900 payment, imagine your income after taxes is $3K/month, or $2800/month, and now your payment went to $1900. That is enough to cause a foreclosure.
Sorry that I didn’t run the numbers. Accuracy is important to me, and I should have verified before I posted.
