5-Year ARMs Rise to 7.88% 7-Year ARMs at 7.10%

On July 16, 2025, the average rate for 5-year adjustable-rate mortgages (ARMs) stood at 7.88%, while the 7-year ARM rate was 7.10%. These rates are based on data from a popular real estate marketplace. ARMs offer an alternative to fixed-rate mortgages, which account for approximately 92% of all mortgages in U.S. households. Unlike fixed-rate mortgages, ARMs feature an initial fixed interest rate period followed by adjustments based on market conditions.

ARMs can be beneficial for certain types of buyers. Starter home buyers who plan to move within a few years may capitalize on the low initial rate without worrying about future adjustments. Real estate investors who intend to flip a house or rent it out may use ARMs to minimize upfront costs. Additionally, buyers facing high-interest markets might find ARMs advantageous due to lower upfront costs and potential relief if market conditions improve.

ARMs are typically 30-year loans with various structures, such as 5/1, 10/6, 3/1, 7/1, and 10/1. These structures indicate the initial fixed-rate period followed by the frequency of adjustments. For example, a 5/1 ARM has a fixed rate for five years and then adjusts annually. The rates during the adjustment periods are influenced by benchmark indices like the Secured Overnight Financing Rate (SOFR), margins added by lenders, and rate caps that limit increases.

Refinancing from an ARM to a fixed-rate mortgage is an option if plans change. This process involves shopping around with lenders, providing necessary documentation, and paying off the existing mortgage. Many Millennial and Gen Z homeowners are choosing to stay in their starter homes due to affordability issues, making refinancing a relevant consideration.

ARMs come with both advantages and disadvantages. The initial fixed introductory period may offer a lower rate compared to fixed-rate mortgages, and some borrowers may find it easier to qualify for an ARM. However, there is a possibility for payments to rise during adjustment periods, making comparison shopping more complex. Additionally, ARMs offer less predictability in monthly payments compared to fixed-rate mortgages, requiring a certain level of risk tolerance.