Homeowners who secured adjustable-rate mortgages (ARMs) when interest rates were near historic lows may be in for an unpleasant surprise. As those introductory rates expire, some borrowers could see their monthly mortgage payments jump by hundreds of dollars or more.
Unlike fixed-rate mortgages, ARMs have interest rates that can change periodically after an initial fixed-rate period. For homeowners who locked in rates around 3% during the pandemic, the first adjustment could create a significant strain on their budgets.
Refinancing into a fixed-rate mortgage may seem like the easiest solution, but today’s rates could make that an expensive move. Fortunately, there are other ways to prepare. Here are five steps to take before your ARM resets.
1. Find out when your ARM resets and what your new payment could be
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If you financed your home with an ARM, your first step should be to confirm when your initial fixed-rate period ends.
For example, with a 5/1 ARM, the initial fixed interest rate period lasts for five years. Then, the annual adjustments start to kick in. With a 7/1 ARM, you can keep your initial mortgage rate for the first seven years. Some ARMs may even adjust rates every six months, so depending on your specific loan, your payments can vary quite a bit.
Your new interest rate typically depends on two factors: a benchmark index, such as the Secured Overnight Financing Rate (SOFR), and a fixed margin set by your lender. The index and margin are added together to determine your fully indexed rate.
Most ARMs have caps that limit how much the interest rate can increase at the first adjustment, at subsequent adjustments and over the life of the loan. Be sure to review your original loan documents or contact your mortgage servicer to confirm your reset date, index, margin and rate caps.
For most standard ARMs, your servicer must send an initial adjustment notice at least 210 days before the first payment at the adjusted rate is due, with certain exceptions. But you should definitely start planning and preparing before that notice arrives.
2. Run the numbers before refinancing into a fixed-rate mortgage
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With an ARM, the biggest risk is that your interest rate could cause your mortgage payment to increase past an amount you’re able to pay. This is where refinancing can come in handy. However, while refinancing can provide payment stability, it doesn’t necessarily mean you’ll save money.
If your ARM has a low introductory rate, refinancing before the reset could actually increase your monthly payment. Even after the interest rate adjusts, keeping your existing loan may be more affordable than replacing it with a new fixed-rate mortgage .
For example, let’s say you have a $300,000 remaining mortgage balance with 25 years left on your loan. Your ARM’s interest rate is increasing from 3% to 5%. Meanwhile, the average 30-year fixed-rate mortgage was 7.32% as of Oct. 22, 2026, according to Freddie Mac .
Here’s how your monthly principal and interest payments would compare:
Mortgage scenario
Monthly payment
ARM at 3%, 25 years remaining
$1,423
ARM resets to 5%, 25 years remaining
$1,754
Refinance at 7.32%, new 30-year term
$2,061
In this scenario, keeping the ARM would cost about $307 less per month, or $3,684 annually, than refinancing into a 30-year fixed-rate mortgage . However, the ARM could adjust again in the future, potentially increasing your payment further.
Refinancing might make more sense if you plan to stay in your home for many years, want predictable payments or expect your ARM rate to rise substantially.
Before making a decision, compare offers from multiple lenders and factor in closing costs, which commonly run around 2% to 5% of the loan amount. Also consider whether restarting a 30-year loan term would increase your total interest costs.
Refinancing isn’t always the most affordable option, but comparing current mortgage rates can help you decide whether it’s worth considering.
Use the tool below to explore today’s refinance offers:
3. Consider making extra principal payments before your rate adjusts
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Paying down your mortgage balance before your ARM resets could help reduce the financial impact of a higher interest rate. When your loan adjusts, the new principal and interest payment is generally calculated using your outstanding balance, adjusted interest rate and remaining repayment term.
Making extra principal payments could reduce the amount of interest you owe and potentially lower your payment when your ARM adjusts. However, extra payments won’t necessarily reduce your required monthly payment right away.
Another option is a mortgage recast, which allows eligible borrowers to make a lump-sum principal payment and have their lender recalculate their monthly payment based on the lower balance. Not all loans qualify for recasting, and availability for ARMs varies by lender and loan type.
Before making extra payments, contact your mortgage servicer to find out how paying down your balance would affect your payment at the next adjustment and whether a recast is available.
Keep your emergency savings in mind, too. Putting thousands of dollars toward your mortgage could save you money on interest, but it also means having less cash available for unexpected expenses.
4. Talk to your mortgage servicer before you fall behind
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If you’re concerned about affording your new mortgage payment, you should contact your loan servicer as early as possible. Depending on your loan type, financial situation and eligibility, your servicer may offer assistance such as a loan modification or another mortgage relief program.
A loan modification changes certain terms of your existing mortgage, potentially making payments more manageable. While approval isn’t guaranteed and some assistance programs require borrowers to meet specific hardship criteria, it’s worth exploring.
You can also speak with a HUD-approved housing counselor for free or low-cost guidance on managing your mortgage and reviewing available options.
If the higher payment would put a lasting strain on your finances, selling your home or downsizing may be worth considering, particularly if you’ve built substantial equity . Selling isn’t an ideal solution for everyone, especially when moving expenses and the cost of purchasing another home are considered.
Still, exploring your options before falling behind could help you avoid more serious financial consequences.
5. Start preparing your budget for a higher mortgage payment
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Homeowners who took out an ARM likely knew the day would come when their interest rate would increase. So one of the simplest ways to handle this is to prepare in advance so it doesn’t have a huge financial impact.
First, estimate how much more you’ll owe each month. If your payment is expected to rise by $400, that’s an additional $4,800 per year you’ll need to account for.
Review your current household spending and identify areas where you could free up cash. That might mean reducing discretionary purchases, canceling unused subscriptions or temporarily adjusting other savings goals.
You can also build a dedicated reserve to help cover the difference during the first several months after your rate changes. For example, if your mortgage payment is expected to increase by $400 per month, setting aside that amount for six months would give you a $2,400 cushion. It also provides an opportunity to test whether your budget can realistically handle the higher payment.
Remember that your mortgage rate isn’t the only housing expense that could increase. Property taxes, homeowners insurance, HOA fees and maintenance costs can also affect your overall housing budget.
If you’re approaching retirement or living on a fixed income, preparing for these expenses is especially important. A higher mortgage payment could leave less room for healthcare costs, travel or other financial priorities.
Don’t wait until your ARM resets to prepare
An adjustable-rate mortgage reset doesn’t automatically mean financial trouble, but it can create an expensive surprise if you’re unprepared.
Before refinancing, review your loan terms and compare what your adjusted payment could look like against the cost of a new mortgage. Paying down principal, exploring assistance programs and building extra room in your budget may also help.
The earlier you start planning, the more options you’ll have to manage a higher payment without disrupting your other financial goals.
If you’re unsure how a higher mortgage payment could affect your long-term financial goals, a financial adviser can help you evaluate your options and create a plan.
Use the tool below to connect with a vetted financial professional:
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5 Ways to Shop for a Low Mortgage Rate
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Fixed vs. Adjustable-Rate Mortgages: Which Is Better for Buying a Home?
