A significant number of homeowners holding adjustable-rate mortgages are approaching scheduled interest rate resets that could substantially raise their monthly payments. According to mortgage data firm ICE Mortgage Technology, approximately 150,000 borrowers with ARMs are set to experience their first rate adjustment during the current year, with an additional 186,000 facing adjustments in 2027 and 155,000 in 2028. Of the annual cohort, roughly 64,000 borrowers were scheduled for adjustments between August and December.
Adjustable-rate mortgages differ from fixed-rate loans by offering lower introductory rates that adjust periodically after an initial fixed period, typically lasting five, seven, or ten years. Once the adjustment phase begins, rates generally reset annually or semi-annually. The current environment presents particular challenges because interest rates have increased substantially since many of these borrowers originally obtained their loans. Consequently, borrowers face median payment increases ranging from several hundred to over one thousand dollars monthly, though a smaller segment may experience rate decreases.
Data illustrates the magnitude of potential adjustments. Seven-year ARMs originated in 2019 that reset between August and December carry a median initial rate of 3 percent on unpaid balances averaging $548,000. Based on current market conditions and rate caps, these borrowers face median adjusted rates of 6.06 percent, resulting in median payment increases of $1,080. Conversely, three-year ARMs originated in 2023 with initial median rates of 8.38 percent are projected to adjust downward to 7.71 percent, reducing payments by approximately $124.
Borrowers facing unfavorable adjustments have limited options. They may refinance into fixed-rate mortgages, though refinancing involves closing costs typically ranging from 2 to 5 percent of the loan amount. Alternatively, homeowners can maintain their current ARM if financially capable of managing potential payment increases. The CFPB requires lenders to provide advance notice of adjustments between 210 and 240 days before the new rate takes effect, allowing borrowers time to evaluate options. Those facing financial hardship can seek assistance from HUD-affiliated housing counselors who can advise on loan modifications or alternative arrangements.
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