In the US, 150,000 ARM borrowers could see rates double, and payments jump by $1,080

Adjustable-rate mortgages (ARMs) may initially seem attractive to homebuyers due to their lower upfront costs, but many are set to face significant financial challenges in the coming years. As a result, around 150,000 homeowners are expected to experience a steep increase in their mortgage rates starting in 2026, with the median interest rate projected to rise from 3% to 6.06%. This shift could lead to an increase in monthly payments by as much as $1,080.

According to data from ICE Mortgage Technology, reported by Realtor.com, a considerable number of first-time ARM resets are anticipated, with an additional 186,000 resets expected in 2027 and another 155,000 in 2028. The trend of borrowers opting for ARMs is partly due to persistently high fixed mortgage rates. By late September, ARMs represented 10.3% of mortgage applications, a rise from 7% and the highest percentage recorded since October 2025. As of October 15, the average rate for a 30-year fixed mortgage was 7.4%. In contrast, Bankrate reported national average annual percentage rates (APRs) of 6.57% for a 5/1 ARM and 6.95% for a 10/1 ARM.

While ARMs typically begin with lower interest rates compared to fixed mortgages, these rates can escalate significantly once the initial period—often lasting five, seven, or ten years—concludes. For instance, a borrower who secured a seven-year ARM in 2019 at a 3% rate and still owes approximately $548,000 when the first adjustment occurs in 2026 could see their interest rate rise to a median of 6.06%. This increase would notably elevate their monthly payment obligations.

In comparison, a borrower who opted for a 30-year fixed mortgage in 2019 at an average rate of 3.94%, as reported by Freddie Mac, would have a monthly payment of $3,093.70 over the same seven-year period, which is nearly $600 less than what the ARM borrower would face. The total payments made by the fixed-rate borrower over that time frame would be around $259,786.77, nearly $50,000 less than the total payments for the ARM borrower. Furthermore, the fixed-rate borrower would pay down their principal faster, reducing their remaining balance to approximately $439,952.52 by 2033, about $12,341 less than the ARM borrower’s balance.

The overall impact on ARM borrowers will depend on several factors, including the timing of the first reset, the unpaid balance at that moment, and the caps that govern how much the interest rate can increase. However, not all ARM borrowers will necessarily face higher payments. For example, some three-year ARMs issued in 2023 may reset to lower rates, going from a median starting rate of 8.38% down to a projected 7.71%, with an outstanding balance of around $136,000. In such cases, the monthly payment could decrease by $124, totaling a reduction of $4,464 over the following three years. Additionally, this scenario could lead to an extra $5,063.34 paid toward the principal, resulting in a remaining balance of $130,936.66 by 2029.

As the housing market evolves, borrowers are encouraged to remain informed about their mortgage options and potential future adjustments to better prepare for the financial implications of rate resets.