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Key Takeaways
According to data from Intercontinental Exchange Mortgage Technology (ICE Mortgage Technology), approximately 150,000 homeowners holding adjustable-rate mortgages (ARMs) will see their first rate reset this year, with 64,000 of those adjustments concentrated in the August-December period. Some borrowers could see their monthly payments surge by hundreds of dollars, with individual cases exceeding $1,000 in increases; a small number of borrowers will see their monthly payments decrease due to rate reductions.
ICE data shows there are approximately 3.1 million adjustable-rate mortgages currently outstanding in the United States, accounting for just 5.6% of the roughly 55.4 million active mortgages nationwide.
Thousands of homeowners with adjustable-rate mortgages will soon face significant changes in their mortgage rates. Data from mortgage data technology company ICE Mortgage Technology shows that approximately 150,000 adjustable-rate loans will undergo their first rate reset this year; another 186,000 will follow in 2027, and 155,000 in 2028. Of this year's total adjustments, roughly 64,000 loans will complete their first rate reset between August and December.
ICE data indicates that because market rates have continued to rise since most borrowers took out their loans, their monthly payments could increase by hundreds of dollars, with some households seeing increases exceeding $1,000 per month. At the same time, a small subset of borrowers will experience rate decreases and lower monthly payments.
Unlike fixed-rate mortgages, adjustable-rate mortgages have rates that change over time. These loans typically feature a discounted initial rate period, with rates lower than fixed-rate loans. However, after the lock-in period ends (commonly 5, 7, or 10 years), the rate begins to reset. Resets generally occur every six months or annually, causing homeowners' monthly payments to rise or fall.
Laurie Goodman, founder and senior fellow at the Housing Finance Policy Center at the Urban Institute, a nonprofit think tank, said: "Simply put, when you originally took out an adjustable-rate loan, you enjoyed a lower initial rate, but the cost was the upside risk on future rates — you might face financial strain as a result. Unfortunately, that situation is now actually happening."
Adjustable-Rate Loans Are a Small Share of All Mortgages: Just 5.6%
According to ICE statistics, there are currently 3.1 million adjustable-rate mortgages outstanding, the highest level in 5.5 years. Of these, 2.05 million are still in their initial fixed-rate lock-in period; 1.05 million have already entered the floating-rate phase. Adjustable-rate mortgages account for only 5.6% of the 55.4 million active mortgages in the United States.
The actual magnitude of rate increases borrowers face depends in part on their original initial rate; at the same time, loans have rate caps that constrain the maximum range of rate increases and decreases. For example: a certain loan stipulates that the first reset can increase by at most 2 percentage points, each subsequent adjustment can increase by at most 1 percentage point, and the cumulative maximum rate increase over the entire loan life is 5 percentage points.
According to Bankrate data, the commonly seen 5/1 adjustable-rate mortgage in the market (fixed for the first 5 years, then adjusting annually thereafter) has a corresponding average initial rate. Data from the Mortgage Bankers Association (MBA) shows that as of the week ending October 2, adjustable-rate mortgage applications accounted for 10.3% of all mortgage applications; in early October 2024, that figure was only 5.9%.
Although ARMs have lower initial rates than 30-year fixed mortgages (the 30-year fixed rate was 7.48% last Friday), current levels are significantly higher compared to the initial rates when large numbers of ARMs were originated several years ago.
ICE provides an example: for 7-year ARM loans originated in 2019 that will see their first reset between August and December this year, the median initial rate was only 3%, with a median outstanding loan balance of $548,000. Combining current market rates with loan cap constraints, after these loans reset, the median rate will reach 6.06%, corresponding to a median monthly payment increase of $1,080.
Conversely, for 3-year adjustable-rate loans originated in 2023, the median initial rate was 83,800 (basis points context), with a median remaining loan balance of $136,000; after reset, the rate will decrease to 7.71%, and monthly payments could decrease by $124.
Borrowers Have Two Main Options: Keep the Original Loan or Refinance
Under U.S. Consumer Financial Protection Bureau regulations, loan servicers must send borrowers a reset notice 210-240 days (7-8 months) before the first payment at the new rate is due, informing them of the rate change based on current market calculations; 60-120 days before the new payment is due, a formal notice will be sent again, specifying the actual effective rate and new monthly payment amount.
For ARM borrowers who plan to continue living in their current homes, there are generally two paths: keep the original loan, or refinance the mortgage.
Kate Wood, credit expert at NerdWallet, said: "If the monthly payment after the rate reset would severely squeeze your finances, even if refinancing doesn't save much in interest, switching to a fixed-rate loan for payment certainty may be a better choice for you." On the other hand, "if your financial situation can withstand the floating-rate period and you can bear the corresponding risk, continuing to hold this adjustable-rate loan is also a viable option."
Duane Buziak, senior mortgage advisor at Coast2Coast Mortgage, said that even if rates rise, some borrowers will still choose to keep their ARMs. "Some people are not under pressure — their income has grown, they've been promoted, their financial situation is good. But many others are not in that position."
If you plan to refinance, be aware that refinancing is essentially applying for a new mortgage, which incurs closing costs typically ranging from 2%-5% of the total loan amount. For a $300,000 loan, that means costs between $6,000 and $15,000; this money can be paid directly at closing or rolled into the new loan principal. Additionally, refinancing has certain requirements regarding your personal credit score and credit history.
Wood advises: "To get the lowest rate a lender offers, your personal qualifications need to be as strong as possible."
If homeowners are worried about being unable to afford their monthly payments after a reset, they can contact a housing counselor certified by the U.S. Department of Housing and Urban Development (HUD). Counselors can guide you on how to apply to your lender for a loan modification or other repayment relief options.
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