Unlike a fixed-rate mortgage, an adjustable-rate mortgage (ARM) offers an initially lower interest rate that can change over time. After an introductory period, typically five, seven or 10 years, the rate begins adjusting — often every six months or one year — which can raise or lower the homeowner's monthly payment.
ICE Mortgage Technology data shows that 186,000 borrowers face their first adjustment in 2027 and another 155,000 in 2028. Of this year's total, about 64,000 were scheduled for their first reset between August and December.
While ARMs make up just 5.6% of the roughly 55.4 million active U.S. mortgages, the volume of outstanding ARMs has reached 3.1 million — the highest in 5.5 years, according to ICE. Of those, 2.05 million are still in their initial fixed period and 1.05 million have entered the adjustable phase.
Exactly how much a borrower's rate adjusts depends on their introductory rate and on contractual caps. For example, a loan might have a 2 percentage point limit at the first adjustment, a 1-point limit for each subsequent adjustment, and a maximum of 5 points over the life of the loan. Because rates have risen, most resets will push payments higher, though a small share of borrowers could see their rate — and payment — decrease.
"Basically, when you took out that adjustable-rate mortgage, you got a little bit lower rate in exchange for the possibility that rates could rise and you could be adversely affected," said Laurie Goodman, fellow and founder of the Housing Finance Policy Center at the Urban Institute. "Well, unfortunately that scenario happened."