Refinancing to a lower rate isn't an option for many homeowners, who now face 'financially unsustainable' mortgage payments

More than 7 in 10 recent home buyers said they made the purchase expecting to refinance later, according to a survey of 1,000 home buyers by mortgage-verification platform Truework.

As mortgage rates hovered above 6% for the last few years, many home buyers made a calculated bet. They took out mortgages at higher rates than they wanted, assuming that rates would come down in the following months or years.

Now they're facing a hard truth: That bet is not paying off.

The average rate on a 30-year fixed mortgage has stayed above 6% over most of the last four years, according to Freddie Mac (FMCC). It even neared 8% in the fall of 2023, a level not seen since late 2000.

People who took out mortgages over that period were forced to settle for higher-rate home loans, especially compared with the rock-bottom sub-3% rates of 2020. Some in the real-estate industry encouraged aspiring buyers to "date the rate, marry the house," assuring them that they could refinance when rates dropped. Some took out adjustable-rate mortgages, figuring that when the rate on the loan reset after an introductory period, it would be at a lower level.

Many took this gamble: More than 70% of home buyers who bought in the last two years said they purchased their home expecting to refinance later, according to a survey of 1,000 home buyers by mortgage-verification platform Truework.

But that scenario has yet to emerge, much to their disappointment.

Though some experts predicted that rates would dip below 6% in 2026, that has happened only once this year, when the average 30-year fixed mortgage rate dropped to 5.98% days before the start of the Iran war in late February. As of last week, it was at 6.49%.

Few people could have predicted the pile-up of factors - from the Trump administration's tariffs, to the war in Iran and the resulting surge in gas prices - that have driven up Treasury yields BX:TMUBMUSD10Y and kept mortgage rates elevated.

And many of the homeowners who thought rates would be lower by now are facing a dilemma: Can they continue making these higher-than-desired mortgage payments, or will they have to sell their house if they cannot keep up?

Half of the recent buyers polled by Truework said that they were worried their mortgage would become "financially unsustainable" if they could not refinance soon, and 85% said refinancing within the next three years is "important to their financial health."

About 32% of recent home buyers said that they had already cut spending on necessities including food, clothing, healthcare and hygiene to afford their mortgage payment.

Stuck with a 7.49% mortgage rate

When Stefi Markowicz bought her first home with her husband in October 2023, they thought they'd refinance their 7.49% rate in the coming months or the following year.

"We're almost three years into the house and at this point, we've almost come to terms with the fact that we probably won't refinance this house at this point, because there are no signs that the market is turning anytime soon," the Fort Lauderdale, Fla., homeowner told MarketWatch.

The 28-year-old, who works in public relations, and her husband, who works as a construction project manager at a real-estate company, paid $629,000 for the three-bedroom home.

They made some budgetary adjustments to accommodate the monthly mortgage payment, Markowicz told MarketWatch. "We cut back on spending on nonessentials like dining out or impulse buys," she said, because buying the house was a stretch for their budget at that time. Since then, the couple's professional roles have changed, which has made them more comfortable with their monthly payments.

But fluctuating property taxes presented an additional financial challenge. The year after they bought the house, their property taxes went up $800 a month, increasing their total housing costs. The year after, those taxes went down by $500 to $600 a month. "It's just been very hard to predict overall," Markowicz said.

Property taxes have surged across the U.S. as home prices have risen over the last few years, dragging up home valuations.

Related: My property-tax bill spiked 40%. I fought the city - and won. Can I get tax write-offs for my time and costs?

Why don't they refinance the loan, since the 30-year rate averaged 6.55% as of mid-July? Markowicz said that the cost of refinancing outweighed the benefit for now, particularly because they plan to move to a bigger house in the near future.

The rule of thumb for refinancing is generally that the new mortgage rate should be at least 75 basis points lower. Refinancing isn't free; it typically costs 2% to 5% of the new loan amount, on top of an origination fee and an appraisal, according to the personal-finance website Bankrate. Homeowners should look at the costs and weigh how long they would need to stay in the house to break even before they go for it.

"If we refinance now, we would have to stay in the home for at least five to eight years for the break-even point to even make sense a little bit," Markowicz said. "And I don't know that we want to stay in this house for eight years."

So she and her husband plan to stay put with the 7.49% rate for now.

"In our minds, we [are thinking], 'Let's hold the rate that we have. We know we can afford it,'" Markowicz said. "Of course, it's not nice to pay that every month, but ... we've been doing what we've been doing for the last three years, and it's been working for us."

Related: Homeowners pounce on falling mortgage rates, with more opting for risky, adjustable-rate loans

80,000 adjustable-rate mortgages reset next year

Adjustable-rate mortgages have also been an attractive option for some homeowners over the last few years, because they offer lower rates for a certain period to bring down the monthly mortgage payment.

ARMs have a fixed, typically lower mortgage rate for the first three, five or seven years, after which the rate adjusts regularly. Some homeowners opted for ARMs, betting that rates would go down before the fixed term ended.

But many of these homeowners are facing a reset to a higher rate in the coming years. And that means higher payments.

Between 2022 and 2024, nearly 1 million U.S. homeowners used an ARM to buy a home and are still paying it off. Out of that group, 133,000 have reached the adjustable phase, while the remaining are still in their initial, lower fixed-rate period, according to data from Intercontinental Exchange $(ICE)$, a mortgage-data company.

In fact, a "modest" 6,000 homeowners with an ARM are expected to hit their initital reset period in the back half of this year, and another 81,000 will reach that point next year, ICE told MarketWatch.

Many people who have opted for ARMs are likely to be able to absorb those increased costs, according to ICE data. "ARM borrowers tend to be higher-income households purchasing more expensive homes in pricier markets," the company noted.

Consider the fact that the average remaining balance of ARM loans that originated from 2022 to 2024 is $658,000, the company said, which was more than double the $318,000 average on fixed-rate loans originated over the same period.

Some homeowners are switching from a 30-year to an adjustable-rate mortgage

Some people are switching from a 30-year fixed mortgage to an adjustable-rate mortgage to score a lower rate - a strategy that paid off for one homeowner.

In Johnson City, Tenn., financial adviser Sawyer Sams said he saved about $300 a month by refinancing a 30-year mortgage with a rate of 6.25% to an ARM with an initial rate of around 5.25%.

Sams and his fiancée, who are in their mid-20s, bought their current home for $462,000 in the summer of 2024. They planned to stay in the three-bedroom home for five years or so, and then move to a larger one.

But Sams wanted to lower his monthly costs. He shopped around to find the lowest rate, and opted for an ARM that had a fixed period of five years - the amount of time he planned to spend in the current home.

Refinancing to an ARM seemed like a no-brainer, he said. That way, if mortgage rates drop within the next five years, he wouldn't be stuck between a rock and a hard place. In five years, "we might look at our situation and say, 'Do we want to move and buy a new house? Or could we refinance at a lower rate into a fixed mortgage?'"

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-Aarthi Swaminathan

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July 22, 2026 15:36 ET (19:36 GMT)

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