5-Year ARMs Hit 7.56% 7-Year ARMs at 7.17%

On June 30, 2025, the average rate for 5-year adjustable-rate mortgages (ARMs) stood at 7.56%, while the 7-year ARM rate was 7.17%. These rates are based on data from a popular real estate marketplace. ARMs offer a fixed interest rate for an initial period, after which the rate can fluctuate based on various factors, including benchmark rates, margins, and rate caps.

ARMs can be advantageous for certain homebuyers, such as those purchasing temporary or "starter homes," real estate investors, and buyers during periods of high interest rates. For temporary homebuyers, ARMs allow them to take advantage of the low fixed-period interest rate and sell the home before the adjustment period hits. Investors can secure a low interest rate upfront and adjust the rent or flip the property as the adjustment period approaches. During high interest rate periods, ARMs offer a lower rate upfront, assuming interest rates cool off by the time the fixed period expires.

ARMs typically start with a low, fixed interest rate for a set period, such as three, five, seven, or ten years. After this fixed period, the adjustment period begins, during which the interest rate can fluctuate. The rate is influenced by benchmark rates, such as the Secured Overnight Financing Rate (SOFR), margins added by the lender, and rate caps that limit how much the rate can increase. The most common ARM lengths include the 5/1, 7/1, and 10/1, where the first number indicates the fixed period and the second number indicates the frequency of rate adjustments during the adjustment period.

Refinancing from an ARM to a fixed-rate mortgage is possible and can be advantageous for homeowners who decide to stay in their homes long-term. The process involves applying with multiple lenders, providing necessary documentation, closing on the new loan, and paying off the old loan. ARMs come with both pros and cons. On the positive side, they offer the possibility of a lower interest rate upfront, lower borrower requirements, and the potential for decreasing monthly payments if interest rates drop. However, monthly payments can increase once the fixed rate expires, making it difficult to rate shop and providing less peace of mind compared to fixed-rate mortgages.