5-Year ARMs Rise to 7.82% Amid Market Fluctuations

On July 15, 2025, the average rate for 5-year adjustable-rate mortgages (ARMs) stood at 7.82%, while the 7-year ARM rate was 7.74%. 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 may find ARMs to be a strategic choice. These groups can benefit from the lower initial rates offered by ARMs and potentially sell the property before the adjustment period begins or adjust their monthly rent 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. Lenders add a fixed margin to the benchmark rate to calculate the ARM’s interest rate, with margins typically ranging from 2% to 3.5%. 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. It’s typical for ARMs to have 30-year terms.

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 the new loan, and pay off the old one.

ARMs have their benefits and drawbacks. The pros include the chance for lower initial interest rates compared to fixed-rate loans, potential for lower monthly payments if rates drop prior to adjustments, and the possibility for less stringent borrower requirements. However, the cons include the risk 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.