Adjustable-Rate Mortgages Stay High at 7.36% for 5-Year Term in U.S.

Adjustable-rate mortgage (ARM) rates remained elevated in the United States as of Aug. 12, 2025, according to the latest report from Zillow, a leading real estate marketplace. The current average rate for 5-year ARMs stood at 7.36%, while the 7-year ARM averaged 7.08%. These rates reflect continued uncertainty in the housing market amid broader economic conditions and persistently high interest rates [1].

Despite the relatively high rates, ARMs still account for a small but notable portion of mortgage transactions. Roughly 8% of mortgage holders opt for these loans, particularly in scenarios where homeowners or investors expect to hold properties for a limited period. This includes short-term or starter home buyers who may benefit from the lower initial rates before selling the property, as well as real estate investors seeking to secure properties quickly with lower upfront financing costs [1].

ARMs operate on a structure where the interest rate remains fixed for a set period—typically three, five, seven, or 10 years—before transitioning into an adjustment phase. During this phase, the rate is influenced by benchmark indices such as the Secured Overnight Financing Rate (SOFR), with lenders adding a fixed margin. Rate caps are also commonly included in ARM agreements to limit how much the rate can increase over specific periods or the entire loan term [1].

The majority of homebuyers—approximately 92%—opt for fixed-rate mortgages due to the predictability and long-term stability they offer. Fixed-rate loans maintain the same interest rate for the full term, making them a popular choice in a volatile market [1]. However, for a smaller segment of the market, ARMs remain an attractive option, especially when interest rates are high and the borrower anticipates an economic improvement or plans to refinance or sell before the rate adjustment period begins.

Refinancing from an ARM to a fixed-rate mortgage is a common strategy when homeowners decide to stay in their homes longer than initially planned. This process involves comparing rates across multiple lenders, submitting required documentation, and closing on a new loan to pay off the previous one. Millennials and Gen Z homeowners, in particular, have been known to adopt this strategy to adapt to shifting housing market conditions [1].

While ARMs offer potential benefits such as lower initial rates and potentially lower monthly payments if rates decline, they also come with significant risks. These include the possibility of increased monthly payments after the fixed period ends, more complex terms that make rate shopping challenging, and reduced long-term stability compared to fixed-rate mortgages [1].

The Zillow report notes that these rates are based on data as of Aug. 11, 2025, with the previous day’s ARM rates report also available for reference. The persistence of high ARM rates underscores the broader economic landscape, where mortgage rates remain a critical factor influencing both homebuyer behavior and investment strategies [1].

Source: [1] Current ARM mortgage rates report for Aug. 12, 2025 (https://fortune.com/article/current-arm-mortgage-rates-08-12-2025/)