5-Year ARMs Rise to 7.92% as Fixed-Rate Mortgages Dominate 92% of Market

On July 21, 2025, the average rate for 5-year adjustable-rate mortgages (ARMs) stands at 7.92%, while the 7-year ARM rate is 7.63%. These rates are based on data from a popular real estate marketplace.

Fixed-rate mortgages remain the dominant choice, with approximately 92% of households opting for this stability. However, ARMs can be advantageous in specific scenarios. For instance, buyers of temporary or "starter" homes may benefit from the low initial interest rates of ARMs, allowing them to sell before the adjustment period begins. Similarly, real estate investors often use ARMs to secure lower initial rates and adjust rents or flip properties as the adjustment period approaches. Additionally, during periods of high interest rates, ARMs can offer a more affordable upfront rate, assuming rates decrease by the end of the fixed period.

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 interest rate can fluctuate based on several factors, including benchmark rates like the Secured Overnight Financing Rate (SOFR), margins set by the lender, and rate caps that limit how much the rate can increase. The most common ARM is the 5/1, which has a fixed rate for five years followed by annual adjustments for the remaining 25 years. Other common ARM lengths include 10/6, 3/1, 7/1, and 10/1.

Refinancing from an ARM to a fixed-rate mortgage is a common practice, especially for those who initially planned to sell their home but decided to stay. 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 advantages and disadvantages. On the positive side, ARMs often offer lower initial interest rates and may have lower borrower requirements. Additionally, if interest rates drop, monthly payments could decrease. However, once the fixed rate expires, interest rates can rise significantly, leading to higher monthly payments. ARMs also have more complex structures, making it difficult to compare offers from different lenders. Furthermore, the lack of long-term stability in payments can be a drawback for some borrowers.