Q: My seven-year adjustable-rate mortgage from 2020 resets next year. I expected to refinance before then, but rates are higher now. How worried should I be, and what are my options?
A: Worried, not panicked.
Start with the scale. About 3.1 million homeowners have adjustable-rate mortgages, roughly 5.6 percent of all active loans, according to ICE data reported by HousingWire. About 180,000 will reset in 2027, the peak year. The hardest hit are roughly 74,000 owners of seven-year loans from 2020, whose payments rise a median $1,066 a month, or 36 percent. For the typical affected borrower, the latest Fed move adds about $14 to $53 a month.
So this is not a market-wide crisis. For the owner facing a 36 percent jump, it is a personal one.
An adjustable loan is a bet that you will sell or refinance before the rate moves, or that rates will fall. Josh Bushmaker (NMLS #756327), a mortgage originator with AnnieMac Home Mortgage who presents adjustable loans to clients, says it plainly: “No one, even the experts, can agree where and when rates are going to change. Though they talk about it, no one has a crystal ball that is right about it. If you are not big into gambling on it, balloons and ARMs are not right for you.”
The reset is automatic, so you cannot argue your way out of it. You can only prepare.
Do these steps now:
- Find your note and read the caps. They limit how much the rate can rise at the first reset, at each later reset, and over the life of the loan. Your new rate may be lower than you fear. The new rate is typically a market index plus a fixed margin, so ask your servicer which ones apply.
- Watch for the notice. For a first adjustment, the lender must send it 210 to 240 days before the first higher payment is due. If it has not arrived, call your servicer.
- Get the new payment in writing. Ask for the exact rate, payment, and loan balance.
- Compare options side by side. A fixed-rate refinance, selling, or riding out the reset can each win, depending on your equity, your credit, and how long you plan to stay. Count closing costs, not just the monthly payment.
- Ask your lender or a different one for a refinance quote before the reset, not after. Equity and income get checked, so do not wait.
- Build a cushion. Even a few months of the higher payment set aside buys time. Extra principal payments before the reset shrink the balance.
Keep copies of the notice, your note, and your payment history. They are your evidence if a dispute comes later.
If you expect trouble making the payment, act early. A HUD-approved housing counselor can review your options and help you work with your servicer. Be wary of anyone who charges upfront fees or guarantees a result.
If you and the servicer disagree, try mediation before you hire an attorney. It is usually faster and cheaper, and many attorneys offer free consultations if mediation does not work.
Do not ignore it, and do not wait for rates to fall. A reset you plan for is an inconvenience. A reset you ignore can cost you the house.
