5-Year ARMs Rise to 7.08% 7-Year ARMs at 7.50%

On June 24, 2025, the average rate for 5-year adjustable-rate mortgages (ARMs) stood at 7.08%, while the 7-year ARM rate was 7.50%. These rates reflect the current market conditions and are based on data from a popular real estate marketplace.

ARMs offer an alternative to fixed-rate mortgages, which are preferred by approximately 92% of homeowners. Unlike fixed-rate mortgages, ARMs feature an initial fixed-rate period followed by adjustable rates. This structure can be advantageous for certain homebuyers, particularly those who plan to sell their property within a few years or are investing in real estate.

Short-term or starter home buyers, real estate investors, and those purchasing during high-interest-rate periods may find ARMs beneficial. Short-term buyers can enjoy lower initial rates and sell before adjustments occur. Investors can secure low initial rates and adjust rents if rates increase. During high-interest-rate periods, ARMs may offer lower initial rates and potentially reduced rates later if economic conditions improve.

ARMs begin with a fixed interest rate for a set duration, commonly three, five, seven, or 10 years, before transitioning into an adjustment period. Factors influencing rate changes during this phase include benchmark rates, margins, and rate caps. Benchmark rates, such as the Secured Overnight Financing Rate (SOFR), reflect the cost banks face for borrowing cash. Margins, typically ranging from 2% to 3.5%, are added to the benchmark rate to calculate the ARM's interest rate. Rate caps limit how much the rate can increase during specific periods or over the loan's lifetime.

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). Other structures, such as 3/1 ARMs, 7/1 ARMs, and 10/1 ARMs, are also available.

Refinancing from an ARM to a fixed-rate mortgage is an option if circumstances change, such as deciding to stay in the home longer than expected. The process involves shopping rates at various lenders, providing documentation, closing on the new loan, and paying off the old one.

ARMs have both benefits and drawbacks. Pros include the chance for lower initial interest rates compared to fixed-rate loans, potential for lower monthly payments if rates drop, and less stringent borrower requirements. Cons include the possibility of increased monthly payments after the fixed period ends, complex terms that make rate shopping more challenging, and less long-term stability compared to fixed-rate mortgages.