A significant number of adjustable-rate mortgage holders are entering a period of potential financial strain as their introductory rates expire and adjustments take effect. According to mortgage data provider ICE Mortgage Technology, approximately 150,000 borrowers are scheduled to experience their first rate adjustment this year, with an additional 186,000 facing resets in 2027 and 155,000 in 2028. Of this year’s cohort, about 64,000 adjustments were slated to occur between August and December.
The financial impact on borrowers varies considerably depending on when their loans originated and their specific loan terms. Borrowers who obtained seven-year ARMs in 2019 face particularly steep increases, with median initial rates of 3 percent rising to approximately 6.06 percent, translating to median monthly payment increases of $1,080. Conversely, some borrowers with more recent originations may see rates decline, with certain three-year ARM borrowers from 2023 experiencing median rate decreases of roughly 0.67 percentage points, resulting in modest monthly savings.
ARMs currently represent 1.05 million of the 3.1 million outstanding adjustable-rate mortgages, with the remainder still in their initial fixed-rate periods. These loans account for only 5.6 percent of the nation’s approximately 55.4 million active mortgages. Interest rate adjustment mechanisms typically include caps limiting how much rates can increase at each adjustment period and over the loan’s lifetime, though specific terms vary by loan.
Borrowers facing difficult adjustments have several options to consider. Refinancing into fixed-rate mortgages provides payment certainty but involves closing costs typically ranging from 2 to 5 percent of the loan amount. Those choosing to maintain their ARMs must assess their financial capacity to absorb potentially higher payments. The Consumer Financial Protection Bureau requires lenders to notify borrowers seven to eight months before adjusted rates take effect, followed by a second notice 60 to 120 days before the new payment begins. Housing counselors affiliated with the Department of Housing and Urban Development are available to assist borrowers exploring loan modifications or other repayment arrangements.
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