Exclusive | Pandemic-era homeowners face $1,000-a-month increase in mortgages as ultra-low rates finally expire

American homebuyers are increasingly turning to adjustable-rate mortgages as borrowing costs surge — a gamble that could leave some homeowners facing monthly payment increases of more than $1,000.Nearly 11% of first-lien mortgage rate locks were for adjustable-rate mortgages, or ARMs, in the week ending Sept.18 — the highest share in nearly four years and more than 3 percentage points higher than three months earlier, according to the latest ICE Mortgage Monitor (ICE).Among homebuyers specifically, nearly 9% chose an ARM, the second-highest weekly share since 2022.The renewed appetite comes as conventional mortgage rates have shot higher.

ICE’s 30-year fixed-rate index crossed 7% for the first time in 20 months in September and ended the month at 7.31% — its highest level since November 2023.Rates have risen for seven straight months, climbing 136 basis points from their February low of 5.95%.“ARMs are becoming more attractive to borrowers looking for relief from today’s higher fixed rates, but the overall market exposure to adjustable payments remains relatively limited,” Andy Walden, head of Mortgage and Housing Market Research at ICE, said in the report.Unlike a traditional fixed-rate mortgage, an ARM typically offers a fixed interest rate for an introductory period before the rate begins adjusting based on market conditions.There are now 3.1 million active first-lien ARMs nationwide, the most in about five-and-a-half years, though they still account for just 5.6% of active mortgages.Most have yet to start adjusting, but the reset risk will begin hitting more borrowers next year.About 186,000 homeowners are expected to see their ARMs reset for the first time in 2027, up from 148,000 this year.The median borrower in that group is projected to see their interest rate jump about 2.2 percentage points, translating into a $645, or 24%, increase in their monthly mortgage payment.Those who took out seven-year ARMs in 2020, when borrowing costs were near ...