Americans who purchased their homes during Covid using adjustable-rate mortgages (ARMs) are about to face yet another increase in their mortgage bills.

As Bloomberg reports, since 2019, more than 1.7 million homeowners purchased their property using ARMs, which are typically lower than the normal 30-year fixed-rate mortgage.

But the problem with ARMs is the “adjustable” part that requires borrowers to modify their mortgages twice a year based on current interest rates.

According to ICE Mortgage Technology, roughly 330,000 borrowers are about to see their mortgage payments spike once their rates reset. Another 100,000 will see their first adjustment in a year.

Overall, roughly 5.5% of U.S. mortgages are adjustable.

The good news is ARMs are the preferred option of wealthier homeowners who can usually afford higher mortgage payments.

But the problem is that ARMs carry an average loan value of roughly $1 million, so unless they have very deep pockets, borrowers are still going to feel the sting.

“They could run into some trouble, especially on these large loan amounts as their ARMs come out of the fixed period,” Chris Stearns, a California-based mortgage loan adviser, told Bloomberg. “Your payment’s gonna almost double and it’s not gonna be pretty.”

Rising mortgage rates aren’t just a problem for borrowers with ARM loans. Experts say they’ve reshaped the housing market by keeping would-be buyers on the sidelines.

The problem with higher mortgage rates

Mortgage rates declined sharply at the end of last year on expectations that the Fed would soon lower interest rates. Those hopes didn't pan out—thanks to an unexpected inflation comeback.

Since reaching a low of 6.6% in mid-January, the average 30-year mortgage rate rebounded to 7.22% in May, according to Freddie Mac.

According to MBA, mortgage rates rose last week for the first time in a month. As a result, new mortgage applications declined by 5.7%, reaching their lowest levels since March.

Applications for new loans and refinancing fell, a clear sign that “borrowers remain sensitive to small increases in rates,” said MBA vice president Joel Kan.

These interest rate levels are “surely reshaping the housing market,” wrote economics editor Chris Anstey.

Daryl Fairweather, chief economist at Redfin, warns that this reshaping isn’t for the better, as it’ll widen the wealth gap between existing homeowners and aspiring buyers.

“Homeownership is becoming less of a middle-class dream and more of an aspirational dream that comes with above-average wealth,” Fairweather said.