Doin' the math on a typical ARM

Here's Suze Orman's spin on the ARM disaster unfolding across America.

For those that people don't care about the price of the asset - just the payment or loan servicing cost, this example of Suze's has the payment rising by $625 a month, or 55%. That means that a house has to fall in value 35% to get the payment back to the same level. (1 x 55% up = 1.55. Then .55/ 1.55 = 35% down)

The rate hike's biggest impact is on the many people who took on an adjustable-rate mortgage over the past few years. The low intro rate that helped make the purchase affordable was nice, but you're on the verge of getting smacked silly when your mortgage comes up for adjustment because your new rate is linked to the Fed funds rate.

For example, anyone who took out a mortgage three years ago and chose a 3/1 ARM --meaning you locked in your rate for the first three years before the lender was allowed to hit you with an adjustment -- probably snagged an interest rate of around 3.5 percent. You're now looking at your rate jumping to 5.5 percent at your first adjustment. Actually, it could have been a lot worse if your mortgage was simply tied to the rise in short-term rates, but you'll be saved a bit by the self-imposed 2-percentage-point maximum annual increase that most ARMS have.
On a $250,000 30-year mortgage, that means your monthly cost will rise from $1,123 to $1,419. That's nearly $300 a month. And more pain may come a year later. Unless the economy totally falls apart and the Fed starts lowering rates -- and that's not expected -- you could get hit with another rate hike near the max of 2 percentage points. Then, you'll be looking at a monthly mortgage payment of $1,748.