5-Year ARM Rate Hits 7.02 as Fixed-Rate Mortgages Dominate Market Share

As of Aug. 26, 2025, the current average rate on 5-year adjustable-rate mortgages (ARMs) stands at 7.02%, according to Zillow, a major real estate marketplace[1]. The 7-year ARM rate is also reported at 6.63% on the same day, offering a slightly lower rate compared to the 5-year product. These figures reflect the ongoing dynamics in the mortgage market, where borrowers are faced with choices between fixed-rate and adjustable-rate loans.

Fixed-rate mortgages continue to dominate the market, with approximately 92% of households opting for this type of loan due to the predictability of interest payments throughout the loan term[1]. In contrast, adjustable-rate mortgages offer a different risk-reward profile, with a lower initial interest rate that can adjust based on market conditions after a set period. This structure makes ARMs particularly appealing to certain groups of homebuyers, such as short-term or starter home buyers, real estate investors, and individuals purchasing homes during high-interest-rate periods[1].

ARMs typically begin with a fixed interest rate period—commonly 3, 5, 7, or 10 years—before entering an adjustment phase where rates may fluctuate based on benchmarks such as the Secured Overnight Financing Rate (SOFR) and lender-defined margins. Lenders add a fixed margin, generally between 2% and 3.5%, to the benchmark rate to determine the ARM’s interest rate. Rate caps are also a key component of ARMs, limiting how much the interest rate can increase during specific adjustment periods or over the lifetime of the loan[1].

Common ARM structures include the 5/1 ARM (five years fixed, then annual adjustments) and the 10/6 ARM (10 years fixed, then adjustments every six months). These products remain viable for borrowers who expect to move or refinance before the adjustment period begins or who are comfortable managing potential rate volatility[1].

For borrowers currently holding ARMs, refinancing to a fixed-rate mortgage is an option if market conditions or personal circumstances change. The process of refinancing from an ARM to a fixed-rate loan is similar to refinancing between fixed-rate loans, involving comparison of rates, documentation submission, and closing on a new loan[1].

Despite the potential advantages of ARMs, such as lower initial interest rates and potentially reduced monthly payments, they also come with risks. These include the possibility of rising monthly payments after the fixed period ends, complex terms that can complicate rate comparisons, and less long-term stability compared to fixed-rate mortgages[1].

The latest mortgage rate data underscores the ongoing relevance of ARMs in a market where fixed-rate mortgages remain the dominant choice for most homeowners. As economic conditions evolve, the decision to pursue an ARM will continue to depend on individual financial goals and risk tolerance.

Source:

[1] Current ARM mortgage rates report for Aug. 26, 2025 (https://fortune.com/article/current-arm-mortgage-rates-08-26-2025/)