Adjustable-rate mortgages surge as borrowers face potential $1,000 monthly hikes
Homebuyers are increasingly choosing adjustable-rate mortgages, exposing many to possible payment spikes of over $1,000 as rates climb.
Adjustable-rate mortgages are gaining popularity, with first-lien rate locks for ARMs reaching almost 11% in the week to Sept. 18, the strongest level in nearly four years and up several percentage points from three months earlier. This shift comes as the ICE 30-year fixed-rate index broke the 7% mark, its highest since November 2023, prompting borrowers to chase lower introductory rates. Currently, ARMs account for just 5.6% of all mortgages, but there are now 3.1 million active first-lien ARMs, the most in about five-and-a-half years.
The first major reset is expected for about 186,000 homeowners in 2027, with median borrowers likely to face a 2.2-point rate jump, adding roughly $645 to monthly payments; those with seven-year ARMs from 2020 could see increases exceeding $1,000. Mortgage affordability is at its weakest in two years, with a median-priced home requiring a $2,383 monthly payment that consumes 31.7% of median household income.
Why it matters
Rising ARM resets could sharply increase monthly housing costs for many borrowers, tightening household budgets.
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