According to [1], ARMs have multiple caps on their interest rates. They cannot be freely floated along with prevailing interest rates. Rather, they have a cap o

According to [1], ARMs have multiple caps on their interest rates. They cannot be freely floated along with prevailing interest rates. Rather, they have a cap on how much the rate can go up at each adjustment period, and a cap on the maximum total increase over the lifetime of the loan. So if you had an ARM at an initial rate of 3%, you're probably gonna hit 5% very soon. But even if inflation hits early 1980s levels and the Fed acts similarly by mercilessly raising rates, ARM borrowers won't see their rates go anywhere near >20%. Additionally, lending standards over the last decade were nowhere near as loose as before the financial crisis. Though apparently they were beginning to ease in Q3 and Q4 of last year. [2] All this to say, I'm sure you're right, borrowers at the margins of lending standards will have a much harder time, and we'll see an increase in foreclosures. But it shouldn't the tsunami that we saw in '06-'09. One does wonder though, with the trend of increasing economic headwinds (inflation, ongoing supply chain bottlenecks, etc.), how close we are to a recession. [1] https://www.bankrate.com/mortgages/federal-reserve-decision-heloc-arms/ https://www.bankrate.com/mortgages/federal-reserve-decision-... [2] https://www.pymnts.com/loans/2021/banks-loosen-lending-standards-in-race-to-loan-money/ https://www.pymnts.com/loans/2021/banks-loosen-lending-stand...