5-Year ARM Rates Rise to 7.27% as U.S. Housing Market Faces Persistent High Borrowing Costs

As of August 20, 2025, the average rate on 5-year adjustable-rate mortgages (ARMs) has climbed to 7.27%, according to Zillow, a leading real estate marketplace [1]. This reflects a continuation of elevated mortgage rates that have persisted for several months, impacting borrowing decisions across the U.S. housing market. The 7-year ARM rate stands at 7.45%, indicating a slight upward trend compared to the 5-year product. The data is based on Zillow's latest available report, as reviewed by Fortune [1].

While fixed-rate mortgages remain the dominant choice for the majority of U.S. households—accounting for roughly 92% of the market—adjustable-rate mortgages still attract a niche segment of borrowers. Approximately 8% of mortgage holders opt for ARMs, drawn by the initial lower interest rates and the flexibility these products offer in certain market conditions [1]. ARMs typically feature a fixed interest rate for a set period—such as 3, 5, 7, or 10 years—before transitioning into an adjustable phase influenced by benchmark indices like the Secured Overnight Financing Rate (SOFR) [1].

Three types of homebuyers are particularly inclined to consider ARMs: starter home buyers, real estate investors, and individuals purchasing in high-interest environments. Starter home buyers may benefit from a lower initial rate if they plan to move within a few years, avoiding the potential for rate increases that occur after the fixed period. Investors might use ARMs to reduce upfront costs and adjust rental strategies in response to changing market conditions. In high-interest environments, ARMs can offer a more affordable entry point, with the possibility of lower payments if market rates decline [1].

Adjustable-rate mortgages also come with built-in mechanisms such as margins, which lenders add to benchmark indices when setting final rates, and caps, which limit how much the rate can increase during adjustment periods. Despite these features, the unpredictable nature of ARMs makes them a riskier option compared to fixed-rate mortgages, particularly for those with long-term homeownership plans [1].

For borrowers who find themselves in a position where they no longer wish to manage the uncertainty of ARMs, refinancing to a fixed-rate mortgage is an option. This process involves evaluating the borrower’s financial situation, comparing lender offers, and meeting eligibility requirements. Refinancing allows homeowners to lock in a stable interest rate and potentially access better terms, especially if the market has improved [1].

However, ARMs also have potential drawbacks. The most notable is the risk of payment increases during adjustment periods, which could strain household budgets if market rates rise. Additionally, the complexity of ARM terms can make it challenging for borrowers to compare different products effectively [1]. Homebuyers considering ARMs should carefully assess their risk tolerance and financial stability before committing to such a product.

The continued relevance of ARMs, despite the dominance of fixed-rate mortgages, underscores the importance of understanding the full range of borrowing options available. As mortgage rates remain elevated, the decision between a fixed-rate and an adjustable-rate mortgage will depend on individual circumstances, market expectations, and long-term financial goals [1].

Source: [1] Current ARM mortgage rates report for Aug. 20, 2025 (https://fortune.com/article/current-arm-mortgage-rates-08-20-2025/)