Many Hawai'i homeowners with adjustable-rate mortgages will face higher monthly payments in the next year.

The state Department of Commerce and Consumer Affairs is urging consumers with adjustable-rate mortgages — especially exotic forms that allow interest-only or minimum payments — to plan now for higher bills.

About five years ago lenders began heavily marketing interest-only and payment-option loans with five-year fixed rates, said Nick Griffin, commissioner of the DCCA's Division of Financial Institutions. These loans are scheduled to adjust to higher rates in the next year.

"There's definitely going to be an episode here," Griffin said of borrowers having to pay significantly higher monthly mortgage payments that could result in financial hardship.

"Go get that box that you put in the bottom drawer of your bureau and try to decipher the terms of those mortgage documents," Griffin said.

The agency also wants lenders to remind customers about impending payment changes and to help customers find solutions that might include refinancing their loans.

Nationwide, home-mortgage delinquencies and foreclosures have been surging in recent months, especially for people who took out subprime mortgages — higher-priced loans for people with tarnished credit or low incomes who are considered greater risks. The distress has stoked anxiety that it could spill over into the broader economy.

Griffin said that nationally there are an estimated 1 million mortgage loans scheduled to recast their interest rates this year, and that an undetermined number are held by Hawai'i borrowers.

"We don't have a local estimate," he said, explaining that mortgage lenders and servicers span the globe and make it difficult to tally Hawai'i borrowers with such loans.

Griffin is concerned that many consumers may not fully understand the characteristics of the loans and may have difficulty making higher payments after rates adjust.

"Consumers with mortgage loans that will recast this year could have considerable increases in their monthly loan payments, resulting in payment shock or possible default," he said.

For example, monthly payments could rise by nearly 50 percent on a 3-percentage-point interest-rate increase — from $1,463 to $2,173 based on a $250,000 home bought using an interest-only loan where the interest rate rose from 7.8 percent to 10.8 percent, according to a Center for Responsible Lending advisory issued last year.

Assuming a 1-percentage-point interest-rate rise on the same loan, the monthly payment would change from $1,463 to $1,857. Even no change in the interest rate would result in payments rising from $1,463 to $1,707 by including some payment for the loan's principal.

Other loans such as minimum payment options may have higher resets.

Griffin said interest-only and payment-option adjustable-rate mortgages did benefit consumers by allowing them to become homeowners by obtaining reduced payments during the initial period. But some borrowers may ultimately experience financial hardship and lose their homes.

"These products are a mixed blessing in some ways," he said.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.