Northeast Florida homebuyers turn to adjustable-rate mortgages as rates climb

As mortgage rates push past 7%, a growing share of Northeast Florida homebuyers are choosing adjustable-rate mortgages in a bid to lower their initial monthly payments—a strategy that offers near-term relief but carries long-term uncertainty in one of the nation's fastest-growing housing markets.

Adjustable-rate mortgages accounted for nearly 11% of first-lien mortgage rate locks in the week ending September 18, the highest share in almost four years, according to ICE Mortgage Technology's October Mortgage Monitor released this month by Florida Realtors. Among home-purchase borrowers specifically, nearly 9% chose an ARM, up more than 2 percentage points since mid-June.

What's happening

The shift comes as fixed mortgage rates climbed sharply in September. ICE's 30-year fixed-rate lock index reached 7. 31% on September 30, up from 6. 73% earlier in the month. The ARM share among first-lien rate locks hit nearly 11% in the week ending September 18, while the home-purchase ARM share reached nearly 9%, up from roughly 7% in mid-June.

Most newer ARMs don't begin adjusting immediately. Roughly 90% of recent ARM originations carry fixed rates for at least five years, and more than 90% of ARMs originated since 2022 are still in their introductory fixed-rate periods, the report found.

However, the future payment adjustments loom large. About 180,000 ARMs nationwide are scheduled for their first reset in 2027. ICE estimates that roughly 74,000 seven-year ARMs originated in 2020 could see a median monthly payment increase of about $1,066 when they reset.

Borrowers are also spending more upfront to reduce their costs. Just over half of first-lien purchase borrowers paid at least half a mortgage point in August, compared with 46% a year earlier. More than one-third paid at least one point.

"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," said Andy Walden, head of Mortgage and Housing Market Research at ICE.

Impact on Northeast Florida's affordability advantage

The trend carries particular weight in Northeast Florida, where the region's long-standing affordability edge over South Florida has drawn thousands of relocating buyers in recent years. For many of those buyers—especially those stretching to afford homes in St. Johns County's top-rated school zones or Duval's revitalizing urban core—an ARM's lower introductory rate can be the difference between qualifying for a mortgage and being priced out.

A typical scenario: a buyer purchasing a $450,000 home in Nocatee or along the CR 210 corridor might save $200 to $300 per month by choosing a 7/1 ARM with an initial rate around 6. 5% instead of locking in a 30-year fixed at 7. 3%. Over the first five to seven years, that adds up to thousands in payment savings. But if rates remain elevated or climb further when the loan adjusts, the borrower faces a payment jump that could strain household budgets—or force a refinance at whatever rates prevail then.

The calculus is especially complex in a market where many buyers assume they will either sell or refinance before the adjustment period begins. Historically, the average American homeowner moves every seven to ten years, which has made five- and seven-year ARMs appealing to buyers who don't plan to stay long. In fast-growth areas like St. Johns and Clay counties, where new subdivisions and master-planned communities are constantly opening, turnover can be even faster as families trade up or relocate for schools and work.

But the 2020-vintage ARMs now approaching their first resets offer a cautionary example. Buyers who locked in seven-year ARMs in 2020—when rates were near historic lows—will face payment increases of around $1,066 per month in 2027, according to ICE's median estimate. Many of those borrowers may have assumed they would refinance before the reset, but today's rate environment makes that refinance far more expensive than they anticipated.

What it means for the local housing market

The rising use of ARMs could have ripple effects across Northeast Florida's housing market, affecting everything from buyer competition to home-price dynamics. In the near term, ARMs expand the pool of qualified buyers by lowering the monthly payment threshold needed to meet lender debt-to-income requirements. That can increase competition for homes in high-demand areas—particularly in St. Johns County, where inventory remains tight and sales prices have been resilient even as the broader market cooled.

For sellers and listing agents, the trend means a larger share of offers may be from buyers using ARMs, which can influence negotiation dynamics. ARM borrowers typically have the same approval strength as fixed-rate borrowers during the introductory period, but the product choice may signal a buyer who is pushing the upper edge of their budget.

From a market-stability perspective, the key question is what happens when large cohorts of ARMs begin to reset. If a significant number of Northeast Florida homeowners face sharp payment increases in 2027 and beyond, some may choose to sell rather than absorb the higher cost, adding inventory to the market. Others may struggle to make payments, though the report notes that overall market exposure to adjustable payments remains relatively limited compared to the run-up to the 2008 financial crisis, when ARMs were far more prevalent and often carried riskier terms.

Real-estate professionals in the region are watching closely. Buyers considering ARMs need to understand not just the introductory rate, but the index their loan is tied to, the margin the lender will add at adjustment, periodic and lifetime rate caps, and realistic scenarios for what their payment could become. Florida law requires lenders to disclose ARM terms, but the onus is on buyers and their agents to model the long-term cost and risk.

Mortgage points and upfront costs

The ICE data also highlights another coping strategy: paying upfront to buy down the rate. Just over half of first-lien purchase borrowers paid at least half a mortgage point in August, compared with 46% a year earlier, and more than one-third paid at least one full point.

In Northeast Florida, where many buyers are relocating with sale proceeds or corporate relocation packages, paying points can make sense for those planning to stay in the home long enough to recoup the upfront cost through lower monthly payments. One mortgage point typically costs 1% of the loan amount—$4,000 on a $400,000 loan—and can reduce the interest rate by roughly 0. 25 percentage points, though the exact trade-off varies by lender and market conditions.

The willingness to pay points underscores the pressure buyers feel. In a region where new-home construction in Clay, St. Johns, and Nassau counties continues at a brisk pace, builders and their affiliated lenders often promote rate buy-downs and temporary rate subsidies as sweeteners to close deals. Resale buyers competing with new construction may need to deploy similar strategies to make their monthly costs manageable.

What happens next

The trajectory of mortgage rates—and ARM popularity—will depend heavily on Federal Reserve policy, inflation data, and broader economic conditions, none of which are predictable with precision. If fixed rates decline in the coming years, many ARM holders will have the opportunity to refinance into stable, long-term loans before their adjustments kick in. If rates stay elevated or rise further, the 2027 reset wave could become a significant financial event for tens of thousands of borrowers nationwide, including a proportional share in Northeast Florida.

For buyers in the market today, the decision between a fixed-rate and adjustable-rate mortgage hinges on individual circumstances: how long they plan to stay in the home, their tolerance for payment uncertainty, their ability to refinance or absorb a higher payment down the road, and the current spread between fixed and adjustable rates. Lenders, real-estate agents, and financial advisors in the region are increasingly walking clients through those trade-offs as ARM products become a more common part of the conversation.

Borrowers considering ARMs should ask lenders for detailed payment scenarios at adjustment, understand the rate caps that limit how much the loan can increase, and stress-test their household budget against a worst-case payment jump. In a market as dynamic as Northeast Florida—where job growth, in-migration, and new development continue to reshape neighborhoods from Amelia Island to Flagler County—the financing choices buyers make today will echo through the housing market for years to come.