Many homeowners who opted for adjustable-rate mortgages (ARMs) five years ago are about to face significant increases in their payments as their initial fixed rates come to an end and adjustments are made based on current market trends.
Since 2019, approximately 1.7 million homeowners have taken out ARMs, according to Intercontinental Exchange (ICE) data cited by CNN. Out of these, about 328,000 loans have already reset, while another 102,000 are expected to reset in the coming year.
ARMs offer a low fixed interest rate for a set period—usually between five and ten years—before the rate adjusts periodically based on market benchmarks.
Typically, ARMs have caps that limit annual increases in rates or payments. They can be advantageous when interest rates are falling, but may pose a risk when rates rise. Given the current economic climate, ARMs could end up costing more than fixed-rate mortgages.
Currently, mortgage rates hover around 7%, keeping borrowing costs high. After a slight correction in housing prices last year, the market remains largely unaffordable as prices continue to climb.
As of July 25, the average 30-year fixed mortgage rate was 6.78%, rising slightly from the previous week but down 0.03% year-over-year. The 15-year fixed mortgage rate sat at 6.07%, also up from the last week and down slightly from the previous year.
The impending adjustments in ARM interest rates could strain many homeowners further, affecting market affordability. Jennifer Hernandez from Houston, who refinanced her mortgage with an ARM in 2016, shared her experience with CNN, stating her payments surged to around $2,000 last year, and she anticipates another increase this October. “It’s stressful worrying about it,” she noted.
Moreover, a recent report by ATTOM Data Solutions found 177,431 foreclosure filings in the U.S. from January to June, including various default actions. This marks a 4.4% decrease from last year but shows a 7.8% rise compared to 2022, indicating that many Americans are still grappling with housing affordability issues.