5-Year ARM Rates Rise to 6.95% Amid Elevated Mortgage Market

As of Aug. 27, 2025, the average rate for 5-year adjustable-rate mortgages (ARMs) stands at 6.95%, according to Zillow, a major real estate marketplace [1]. This rate reflects a slight shift in mortgage market dynamics, as ARM rates continue to remain elevated amid broader economic conditions. The 7-year ARM rate is reported at 6.63%, indicating a marginal difference between the two structures [1]. These rates were derived from Zillow’s most recent data, which was updated as of Aug. 26 [1].

Despite the relatively higher rates, ARMs remain a viable option for a small but significant portion of U.S. homebuyers—approximately 8% of all mortgage borrowers—due to their unique benefits [1]. Unlike fixed-rate mortgages, which account for roughly 92% of the market [1], ARMs offer an introductory fixed-rate period, followed by periodic adjustments based on prevailing market benchmarks and lender-imposed margins.

ARMs are particularly appealing to certain groups of borrowers. For example, first-time homebuyers who expect to move within a few years may benefit from locking in a lower initial rate and selling the property before adjustments take effect [1]. Similarly, real estate investors often utilize ARMs to reduce upfront borrowing costs, planning to sell or refinance before the rate adjustments become significant [1]. In a high-interest-rate environment, ARMs may also provide cost savings during the initial period, especially if rates decline over time [1].

The structure of ARMs typically involves a 30-year term with an introductory fixed period of 3, 5, 7, or 10 years, followed by periodic adjustments. These adjustments are influenced by factors such as benchmark indices like the Secured Overnight Financing Rate (SOFR), margins added by lenders, and rate caps that limit the extent of interest rate increases [1]. Popular ARM structures include 5/1, 10/6, and 3/1, where the first number indicates the initial fixed period and the second the adjustment frequency [1].

Borrowers who initially opt for ARMs but later decide to remain in their homes longer than expected can explore refinancing options to transition to fixed-rate mortgages [1]. This process involves meeting lender requirements, providing financial documentation, and paying off the existing loan. It is a common strategy among younger homeowners who initially purchased starter homes but later find themselves unable to upgrade due to financial constraints [1].

While ARMs offer potential advantages, they also carry risks. The most notable is the uncertainty of future interest rate adjustments, which can lead to unpredictable monthly payments. Borrowers must be prepared for the possibility of increased payments during periods of rising rates [1]. Additionally, the complexity of ARM terms can make comparison shopping more difficult than with fixed-rate mortgages, where rates remain stable for the entire loan term [1].

For now, the ARM mortgage market continues to operate under conditions of relative uncertainty, with borrowers weighing the trade-offs between lower initial rates and the risk of future adjustments. Zillow’s ongoing data tracking provides a real-time reference for market participants, offering insights into how ARM rates evolve in response to broader economic trends [1].

Source: [1] Current ARM mortgage rates report for Aug. 27, 2025 (https://fortune.com/article/current-arm-mortgage-rates-08-27-2025/)