US buyers turn to adjustable-rate mortgages as fixed rates pass 7%

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Kooky

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Adjustable-rate mortgages made up nearly 11 per cent of all rate locks in the United States in the week of 18 September 2026, the largest share since late 2022. The figure comes from the October 2026 Mortgage Monitor of Intercontinental Exchange (ICE), the mortgage data firm, as reported by the trade publication Inman on 5 October.

The same report measures what pushed borrowers there. ICE's index for the 30-year fixed rate crossed 7 per cent for the first time in 20 months and reached 7.31 per cent on 30 September, after the Federal Reserve's quarter-point increase in September. On a median-priced home, the monthly payment now takes close to a third of the median household's income.

For agents, loan officers and anyone with a buyer under contract, the report answers two questions at once: how stretched the monthly payment has become, and what borrowers are doing about it.

Source: ICE October 2026 Mortgage Monitor, as reported by Inman on 5 October 2026.

What the affordability measures show

ICE's affordability measure starts from a simple case: a median-priced home, bought with 20 per cent down. At the 7.2 per cent rate recorded on 24 September, Inman reports, the monthly principal-and-interest payment on that home came to US$2,383.

Set against earnings, that payment took 31.7 per cent of median household income in late September. In January 2026 the same measure stood at 27.6 per cent. The difference, 4.1 percentage points in about nine months, is the number that sums up the year for a buyer: the same household now gives a noticeably larger slice of its pay to the same kind of home.

The figure covers principal and interest only. A second ICE release adds the part it leaves out. In its September 2026 Mortgage Monitor, built on second-quarter data and reported by Inman on 9 October, ICE found that insurance makes up 9.6 per cent of the average monthly mortgage payment. The average cost of property insurance for single-family mortgage borrowers was US$209 a month, nearly 80 per cent above its level in early 2020. That cost sits on top of the principal-and-interest figure used in the affordability ratio.

Demand has reacted. Purchase mortgage applications fell 8 per cent over the three weeks ending 18 September, according to Mortgage Bankers Association (MBA) data cited by ICE.

How borrowers are responding

The report describes two ways buyers are trying to bring the payment down. The first is to pay for a lower rate. More than half of homebuyers paid at least half a point upfront to reduce their rate in August, according to ICE, up from 46 per cent a year earlier. A point, in this sense, is a fee paid upfront in exchange for a lower rate.

The second is to change the type of loan. An adjustable-rate mortgage, or ARM, carries a rate that is fixed for an initial period and then resets. In exchange for accepting that later uncertainty, the borrower starts at a lower rate than on a 30-year fixed loan.

The MBA's weekly survey, published on 7 October, shows the size of that discount. For the week ending 2 October, the contract rate on a 5/1 ARM was 6.43 per cent, against 7.49 per cent for the 30-year fixed, a gap of 1.06 percentage points. In the same survey, ARMs accounted for 10.3 per cent of mortgage applications.

Andy Walden, head of mortgage and housing market research at ICE, said, as quoted by Inman, that ARMs are growing more attractive to borrowers who want relief from the higher fixed rates now on offer.

Where adjustable-rate loans are gaining ground

The overall share hides a difference between people buying a home and people replacing an existing loan. ICE's figures for the week of 18 September, as reported by Inman, break down as follows.

Refinancing is where the move is strongest. At 17.5 per cent of refinance locks, the adjustable share is the highest ICE has recorded since it began tracking the measure weekly in 2019. Among purchase loans the share is smaller, close to 9 per cent, but still the second-highest weekly reading since 2022.

The loans being written are not the short-fuse products the term may suggest. About 90 per cent of new ARMs are fixed for at least five years, ICE found, and half are fixed for at least seven. A buyer who locks one this autumn will, in most cases, not see a first rate change before the early 2030s.

All of this has lifted the stock of such loans. ICE counts 3.1 million active ARMs, the most in about five and a half years. They remain a small part of the whole: 5.6 per cent of active mortgages.

The resets already on the calendar

Because most of these loans are recent, most of them have not adjusted yet. More than 90 per cent of ARMs originated since 2022 are still inside their fixed period, according to ICE. About one-third of all active ARMs, or 1.05 million loans, are past it, which is the smallest number in the 25 years ICE has tracked. Put the other way round, roughly two active ARMs in three have never adjusted, and their holders have so far known only the opening rate.

That balance will shift, on a timetable that is already known. ICE counts the loans whose fixed period ends in each coming year, and the numbers rise.

The 186,000 loans due in 2027 compare with 148,000 this year. By 2032 the scheduled count is 425,000, more than twice the 2027 figure.

What a first reset could cost

How much a reset costs depends on the rate the loan started at. ICE singles out one group for whom the gap is wide: 74,000 borrowers who hold seven-year ARMs taken out in 2020, when rates were far lower than today.

According to Inman's account of the report, those loans carry a median balance of US$629,000 and a median rate of 2.75 per cent. ICE estimates that the rate would rise to 5.79 per cent at the first reset in 2027, an increase of 3.04 percentage points, adding a median US$1,066 a month to the payment. After later adjustments the estimated increase grows to US$1,269 a month, or 43 per cent.

That group is the sharp end. For the median borrower reaching a first reset in 2027, ICE estimates the rate would go up by about 2.2 percentage points and the payment by US$645 a month, or 24 per cent.

These are ICE's estimates, not outcomes. Where rates will be when each loan actually resets is not something the report can know.

Loans that are adjusting now

For the loans already past their fixed period, the Federal Reserve's September increase passes through in full, ICE says. The effect per household is modest: a median US$14 a month.

Inman also gives a figure of US$53 a month for ARMs taken out since 2022, where the median balance is US$340,000. ICE also models a longer run of increases. If the Federal Reserve raises its rate by a full percentage point in total, which ICE says futures markets expect, the overall median increase would be US$56 a month.

Home equity lines of credit move faster still. ICE notes that these lines track the prime rate and reset every month, so a change by the Federal Reserve reaches the borrower almost at once. For the median borrower, with a US$44,000 balance at 7.4 per cent, the September increase adds US$9 a month.

None of these monthly amounts is large beside the first-reset estimates above. The difference is one of timing: a loan that is already adjusting absorbs each increase as it comes, in small steps, while a loan still inside its fixed period meets several years of rate changes in a single adjustment.

What the figures mean for the trade

Taken together, the two sets of numbers describe a market adjusting to a payment that has grown faster than incomes. A household that would have given 27.6 per cent of its income to the median home in January now gives 31.7 per cent. Some buyers have paused, as the 8 per cent fall in purchase applications suggests. Others are buying the rate down with points, or choosing a loan whose rate is fixed for five or seven years instead of thirty.

For agents and loan officers, the practical point is that the conversation with a buyer has changed. A share close to 9 per cent of purchase locks means that roughly one buyer in eleven who reached the lock stage in that week chose an adjustable loan. The MBA's figures for the week ending 2 October, with ARMs at 10.3 per cent of applications, point the same way, although applications and rate locks are different measures and are not directly comparable.

The report also offers some perspective on scale. Even at a five-and-a-half-year high, ARMs are 5.6 per cent of active mortgages, and the number of loans already adjusting is the lowest in a quarter of a century. The exposure is real for the households concerned, and it grows with every year on ICE's reset calendar, but it starts from a small base.

The loans being locked this autumn buy five to seven years of a lower rate. What they cost afterwards will be decided by rates nobody can read today.

The next readings will come from the same sources: the MBA publishes its application survey every week, and ICE's Mortgage Monitor appears monthly. The first resets ICE has counted are dated too: 186,000 loans in 2027.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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