Understanding Current Adjustable-Rate Mortgage (ARM) Rates: What Homebuyers Need to Know.

Understanding Current Adjustable-Rate Mortgage (ARM) Rates: What Homebuyers Need to Know

As of late August 2025, the average rate on 5-year adjustable-rate mortgages (ARMs) stands at 6.93%, according to recent data from Zillow reviewed by Fortune. Meanwhile, the 7-year ARM rate averages slightly lower at 6.63%. While fixed-rate mortgages remain the preferred choice for roughly 92% of U.S. homebuyers due to their predictability, ARMs are still chosen by about 8% of borrowers for specific financial advantages.

What Is an Adjustable-Rate Mortgage (ARM)?

Unlike fixed-rate loans that lock in a single interest rate for the entire mortgage term, ARMs offer an initial fixed-rate period—commonly 3 to 10 years—after which the interest rate adjusts periodically based on market benchmarks like the Secured Overnight Financing Rate (SOFR). The final mortgage rate is determined by combining this benchmark rate with a margin set by the lender, often ranging between 2% and 3.5%. ARMs also come with caps that limit how much the interest rate can increase during each adjustment and over the loan’s lifetime.

Who Should Consider an ARM?

ARMs might be a strategic choice for three types of buyers:

• Short-term homeowners: If there is a strong likelihood of relocating within a few years, ARMs offer lower initial rates that can save money before adjustments begin. However, it’s important to realistically assess the timing of any move.

• Property investors: Investors may take advantage of the low introductory rate to purchase and quickly sell or rent out properties, potentially avoiding rate increases.

• Buyers facing high-interest environments: When overall interest rates are elevated, ARMs can offer initial savings and even rate reductions if market conditions improve later.

Benefits and Risks

The key benefit of an ARM is the potential for lower initial payments compared to fixed-rate loans. However, the risk lies in future rate adjustments, which could significantly increase monthly mortgage payments. Many borrowers who initially opted for ARMs refinance into fixed-rate mortgages if their plans change or if they decide to stay in their home longer than expected.

Refinancing from ARM to Fixed-Rate

If circumstances shift—such as deciding to keep a starter home rather than selling—borrowers can refinance from an ARM to a fixed-rate mortgage. This involves applying for a new loan at today’s fixed rates, paying off the original ARM, and enjoying the security of stable payments.

Final Thoughts

While fixed-rate mortgages dominate the market due to their stability, ARMs remain a useful financial tool for certain buyer profiles, especially those with short-term plans or investment goals. As always, it is crucial to evaluate personal financial goals and consult a trusted loan officer to understand whether an ARM fits your unique situation.

This blog captures the current ARM rate environment, explains how ARMs function, who benefits most from them, and the refinancing options available for borrowers. This should help readers make better-informed mortgage decisions amid fluctuating interest rates.