Payback looms on adjustable-rate mortgage spree

The Chicago Tribune reports:

It has been terrorism. A stock market crash. Rising energy prices.

Are you ready for the next obstacle for consumers?

Millions of cheap, teaser-rate mortgages that people took out a few years ago, when interest rates were at rock bottom, are about to become much more expensive.

More than $1 trillion in mortgage debt costing only 4 percent or so--rates locked in three years ago--is about to soar in price, to nearly 8 percent in some cases.

With consumers already stressed by credit card payments, high gas and electric prices and meager raises, economists worry that the mortgage changes will put a new crimp in retail spending and perhaps lead to more defaults.

"It just suggests that consumers, particularly lower-end consumers, are going to be more stretched when these loans reset, with potentially negative implications for spending growth," said Scott Hoyt, director of consumer economics at Moody's Economy.com.

For somebody with a $150,000 mortgage payable over 30 years, a pop from 4.5 percent to 7.5 percent would mean a payment increase from $760 to $1,050, not including taxes or insurance. That's nearly $300 removed from a household's free monthly cash flow, all at once.

With mortgage rates going even higher,we expect more homes on the market because not everyone will be able to afford to refinance.Plus,baby boomers are going to start retiring soon.Add that all up,and in certain cold weather climates there could be a supply and demand imbalance.