5-Year ARMs Rise to 7.74% 7-Year ARMs at 7.96%

On July 22, 2025, the average rate for 5-year adjustable-rate mortgages (ARMs) stood at 7.74%, while the 7-year ARM rate was 7.96%. These rates reflect the current market conditions and are based on data from a popular real estate marketplace.

Fixed-rate mortgages remain the preferred choice for approximately 92% of households with mortgages, due to their stability and predictability. However, ARMs can be advantageous in certain scenarios, appealing to about 8% of mortgage holders.

Short-term or starter home buyers, real estate investors, and buyers during high-interest-rate periods are among the groups that might benefit from considering an ARM. These loans offer lower initial rates and can be a strategic choice for those who plan to sell the property before the adjustment phase begins or adjust the monthly rent amount if the rate increases.

ARMs begin with a fixed interest rate for a set duration, commonly three, five, seven, or 10 years, before transitioning into an adjustment period. During this phase, several factors influence rate changes, including 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.

If circumstances change after taking out an ARM, such as deciding to stay in the home longer than expected, it may be beneficial to refinance to a fixed-rate loan. The process of refinancing from an ARM to a fixed-rate mortgage is similar to refinancing other mortgage types: shop rates, provide documentation, close on your new loan, and pay off the old one.

ARMs have their benefits and drawbacks. The chance for lower initial interest rates compared to fixed-rate loans, potential for lower monthly payments if rates drop prior to adjustments, and possibility for less stringent borrower requirements are some of the pros. However, monthly payments may increase after the fixed period ends, complex terms make rate shopping more challenging, and there is less long-term stability compared to fixed-rate mortgages.