ARM Mortgages Hold Near Multi-Year Averages Amid Elevated Rates

Adjustable-rate mortgages (ARMs) continued to hover near multi-year averages on Aug. 22, 2025, according to Zillow data, with the 5-year ARM averaging 7.17% and the 7-year ARM averaging 7.13%. These figures reflect a stable but elevated interest rate environment, which has persisted through most of 2025. The data, collected as of Aug. 21, 2025, indicates that ARMs remain a niche but viable option for certain borrowers, particularly those with shorter-term housing plans or investment strategies [1].

While fixed-rate mortgages dominate the U.S. market, accounting for approximately 92% of all home loans, ARMs continue to attract about 8% of borrowers due to their lower introductory rates and potential flexibility. The structure of ARMs typically includes a fixed-rate period followed by periodic adjustments based on a benchmark index, such as the Secured Overnight Financing Rate (SOFR), plus a lender-specified margin. These adjustments can introduce volatility into monthly payments, which is a key consideration for potential ARM borrowers [1].

The 5/1 ARM and 7/1 ARM structures remain among the most commonly offered options, with initial fixed periods of five and seven years, respectively. Following these periods, rates adjust annually based on prevailing market conditions. Rate caps are typically included in ARM agreements to limit the magnitude of rate increases, offering some degree of predictability despite the variable nature of the loan [1].

For short-term homeowners, ARMs may provide a financial advantage by offering lower initial rates that can be beneficial before relocation. Similarly, property investors may leverage ARMs to reduce initial borrowing costs, especially when planning to sell or rent out the property before major rate adjustments occur. During periods of high-interest rates, ARMs may also offer a temporary advantage, with the potential for future rate reductions if market conditions improve [1].

Despite these potential benefits, ARMs come with notable risks, including the possibility of significant payment increases after the initial fixed period ends. This unpredictability can complicate financial planning and make ARMs less attractive to borrowers seeking stability. Additionally, refinancing from an ARM to a fixed-rate mortgage may become a viable option for some borrowers as circumstances change. This process involves shopping for a new loan, submitting required documentation, and paying off the existing ARM [1].

The current rate environment has also seen fixed-rate mortgages remain relatively elevated. As of Aug. 21, the 30-year fixed mortgage rate averaged 6.57%, according to the Mortgage Research Center [6]. This rate reflects a slight upward trend from earlier in the month but remains within a narrow range that has characterized much of the past two months [5].

Analysts have pointed to the Federal Reserve’s anticipated rate cuts as a potential factor in future mortgage rate movements. While current data suggests that rates remain high, the expectation of Fed intervention in September 2025 has introduced some optimism among market observers. However, the extent to which these cuts will influence ARM and fixed-rate mortgage rates remains uncertain and subject to broader economic conditions [7].

ARMs are generally considered more complex than fixed-rate loans, requiring borrowers to closely monitor market trends and understand the implications of rate adjustments. As such, consulting with a trusted loan officer before committing to an ARM is recommended. This is particularly important for first-time borrowers or those unfamiliar with the nuances of adjustable-rate products [1].

Overall, the ARM market continues to operate within a landscape defined by high interest rates and cautious borrowing behavior. While the majority of borrowers remain committed to the stability of fixed-rate mortgages, ARMs retain a role for those who can tolerate rate variability in exchange for potential financial benefits. As economic conditions evolve, the appeal and feasibility of ARMs may shift, prompting further adjustments in borrower preferences and lender offerings [1].

Source:

[1] Current ARM mortgage rates report for Aug. 22, 2025, Fortune, https://fortune.com/article/current-arm-mortgage-rates-08-22-2025/

[5] Latest Mortgage Rates Articles, Mortgage News Daily, https://www.mortgagenewsdaily.com/topic/mortgage-rates

[6] Mortgage Rates Today: August 21, 2025 – 30-Year and 15-, Forbes, https://www.forbes.com/advisor/mortgages/mortgage-rates-08-21-25/

[7] Mortgage Rates Hold Steady Amid Expected Fed Rate Cut, AInvest, https://www.ainvest.com/news/mortgage-rates-hold-steady-expected-fed-rate-cut-september-2508/