Thousands of homeowners face steep payment increases as adjustable-rate mortgages reset
Hundreds of thousands of U.S. homeowners are approaching the moment adjustable-rate mortgages were designed to make them dread: the first rate reset. According to mortgage data firm ICE Mortgage Technology, about 150,000 borrowers will see their ARM rates adjust for the first time this year — roughly 64,000 of them between August and December — followed by 186,000 in 2027 and 155,000 in 2028. Because market rates have risen sharply since many of these loans were originated, monthly payments could climb by hundreds of dollars, and in some cases by more than $1,000, though a small share of borrowers may actually see payments fall.
The dynamic of an ARM is straightforward: borrowers accept an initially lower rate in exchange for the risk that rates could later rise — a scenario that, as Laurie Goodman of the Urban Institute's Housing Finance Policy Center puts it, has now materialized. There are 3.1 million outstanding ARMs, the highest volume in five and a half years, though adjustable loans still represent only 5.6% of the roughly 55.4 million active U.S. mortgages. ARMs are growing more popular again, making up 10.3% of mortgage applications in early October, up from 5.9% a year earlier.
The size of each payment shock depends on when the loan was taken out. Borrowers with seven-year ARMs originated in 2019, carrying a median initial rate of 3% and an unpaid balance of $548,000, face a median adjusted rate of 6.06% — a payment jump of $1,080 per month. By contrast, holders of newer three-year ARMs from 2023, whose median initial rate was 8.38%, are poised to see rates drop to a median 7.71%, saving $124 a month.
Lenders are required to notify borrowers seven to eight months before the first adjusted payment, with a second notice confirming the actual new rate. Those whose budgets are stretched face a choice between riding out the adjustable period or refinancing into a fixed-rate loan — a 30-year fixed currently averages 7.48% — though refinancing brings closing costs of 2% to 5% of the loan. Homeowners worried about affording payments can turn to Department of Housing and Urban Development-approved housing counselors for guidance on loan modifications.
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