A significant number of borrowers holding adjustable-rate mortgages are entering a critical phase as their introductory fixed-rate periods end and interest rate adjustments begin. According to mortgage data company ICE Mortgage Technology, roughly 150,000 ARM holders are scheduled to experience their first rate adjustment later this year, with an additional 186,000 expected to adjust in 2027 and 155,000 in 2028. Of those adjusting this year, approximately 64,000 are slated to see changes between August and December.
The timing of these adjustments coincides with a period when market interest rates have risen substantially from the levels borrowers had when they originally secured their loans. This dynamic has created a challenging scenario for many homeowners, as their monthly payments are poised to increase significantly. Based on current market conditions and loan-specific rate caps, borrowers could see increases ranging from hundreds of dollars to more than $1,000 monthly, though a smaller proportion may experience rate decreases. For example, borrowers with seven-year ARMs originated in 2019 with median initial rates around 3% face potential adjusted rates near 6% with median payment increases exceeding $1,000.
ARMs remain a relatively small portion of the overall mortgage market, representing 5.6% of approximately 55.4 million active mortgages nationally. However, the volume of outstanding ARMs has reached 3.1 million, the highest level in 5.5 years. Among these, roughly 2.05 million borrowers remain in their initial fixed-rate period, while 1.05 million have already entered the adjustable phase.
Borrowers facing upcoming adjustments have several options available to them. Some may choose to refinance into fixed-rate mortgages despite associated closing costs, while others may have sufficient financial capacity to maintain their existing ARMs and absorb the payment increases. Lenders are required to provide notice between 210 and 240 days before the first adjusted payment is due, followed by a second notice 60 to 120 days prior showing the actual new rate. Homeowners experiencing financial strain can seek assistance from HUD housing counselors or explore loan modification options with their lenders.
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