These homeowners took a common risk with their mortgages. For some it paid off; for others, their bill's about to go up $1,000 a month.
More and more homeowners are looking for ways to buy a home in an affordable way.
An adjustable-rate mortgage (ARM) is a common avenue to take, but it comes with a risk.
A risk that about 150,000 homeowners are about to learn the hard way.
That is the number of homeowners with ARMs who are scheduled to see their interest rates adjust for the first time this year, according to ICE Mortgage Technology, a mortgage data and technology company.
An additional 186,000 will face their first adjustment in 2027 and 155,000 in 2028.
For those about to see their rate adjust by year's end, there’s the potential for all the savings they locked in to fly out the window given the current rate.
Which then begs the question for the thousands of homeowners looking at ARMs right now: Is it worth the risk?
The drawback of an adjustable-rate mortgage
ARMs accounted for 10.3% of mortgage applications in late September, up from 7% at the beginning of the year and the highest share since October 2025.
This comes at a time when the current 30-year fixed mortgage rate is hovering in the mid-7%. As of Oct. 15, the rate for a fixed mortgage stands at 7.4%. Meanwhile, the national average for a 5/1 ARM APR stands at 6.57%, while the average 10/1 ARM APR is 6.95%, according to Bankrate's latest survey of the nation's largest mortgage lenders.
As you can see, the initial appeal of an ARM is that if often starts with an introductory rate that’s lower than on fixed-rate loans. However, after an initial period—often five, seven, or 10 years—the rate begins adjusting.
And therein lies the rub.
Take, for example, a homeowner who took out a seven-year ARM that originated in 2019. If their rate is set to reset between now and the end of the year, it’s likely they will have a median initial rate of 3% and a median unpaid balance of $548,000, ICE data shows.
Based on current rates and the caps on these ARMs, those borrowers face a median adjusted rate of 6.06%—which translates into their payment jumping by a median $1,080, according to ICE.
So let’s do the math here.
First, we’ll compare the homeowner who took out a seven-year ARM. If they continue on with another seven-year loan locked in at 6.06% and their unpaid balance is $548,000, they will pay $3,684.97 a month at that rate and have a balance of $452,294 in seven years.
Now, let’s consider a homeowner who took out a 30-year fixed mortgage at the same time in 2019. The average 30-year fixed mortgage rate for 2019 was 3.94%, according to Freddie Mac data.
Based on the first homeowner’s unpaid balance and assuming both hypothetical homeowners put down 20%, we’re going to say the home was purchased for roughly $815,000.
The homeowner who took out a 30-year fixed mortgage rate has an unpaid balance of $$560,776.80, over $12,000 more than the homeowner who took out the ARM.
But then let’s look at how things shake out over the next seven years, if the first homeowner continues with another seven-year arm at a rate of 6.06% while the second homeowner has their 3.94% rate locked in.
With their 3.94% rate locked in, the fixed-rate homeowner pays $3,093.70, a nearly $600 difference every month compared to the ARM holder.
Over those seven years, the fixed-rate homeowner spends $259,786.77 in total payments, saving nearly $50,000 compared to the ARM borrower.
But perhaps more importantly, the higher interest rate on the ARM significantly slows down principal reduction. Despite starting 2026 with $12,776.80 more debt, the 30-year fixed homeowner pays down $120,824.28 in principal over the next seven years (compared to just $95,706 for the ARM holder).
By 2033, the fixed-rate borrower’s balance drops to $439,952.52—leaving them with $12,341.48 less debt than the ARM borrower while having spent far less each month to get there.
The upside of an ARM
Then again, it’s not all bad. There are actually some homeowners who will see their monthly rates drop.
By contrast, borrowers with three-year ARMs originated in 2023 have an initial median rate of 8.38% and an unpaid remaining balance of $136,000, according to ICE.
Their rate is poised to drop to a median of 7.71%, reducing their monthly payment by $124.
Keep in mind that rates got close to 8% in late 2023, reaching as high as 7.79% on Oct. 26, 2023.
So if we compare an ARM-holding homeowner against a homeowner who got a 30-year fixed mortgage in 2023, the math looks vastly different.
Over the next three years, with the rate reduction at 7.71%, that’s $4,464 in savings over the 36-month period.
At the same time, the lower rate allows them to chip away more effectively at their principal, knocking an additional $5,063.34 off their loan balance and bringing their remaining debt down to $130,936.66 by 2029.