ARM Mortgages Stay Stable Amid a Volatile Market

As of Sept. 4, 2025, the average rate for 5-year adjustable-rate mortgages (ARMs) stands at 6.80%, according to recent data from Zillow. This rate follows a slight decline from the 6.93% recorded on Aug. 29 and a 6.87% average noted on Sept. 3, illustrating a narrowing of fluctuations in recent days. The 7-year ARM rate, by contrast, is currently at 7.08% as of Sept. 3, up from 6.63% on Aug. 29, indicating a broader trend of volatility within the adjustable-rate mortgage market.

The continued interest in ARMs is notable, despite the dominance of fixed-rate mortgages in the U.S. housing market. Fixed-rate loans account for approximately 92% of all U.S. mortgages, offering stability and predictability in payments, a key attraction for homeowners seeking long-term certainty. ARMs, however, continue to appeal to a niche but significant segment of buyers—roughly 8% of mortgage holders—offering potential cost savings for specific scenarios. These include short-term homeowners, real estate investors, and those entering the market during periods of high interest rates.

Adjustable-rate mortgages operate through a combination of benchmark indices, lender margins, and rate caps. The SOFR (Secured Overnight Financing Rate) is the most common index used, with lenders adding a margin to determine the borrower’s final interest rate. Margins typically range between 2% and 3.5%, and remain fixed for the duration of the loan. Rate caps are also a critical feature, limiting how much the rate can adjust at each period and over the life of the loan.

The most common ARM structures include the 5/1 ARM, where the rate is fixed for five years and adjusts annually thereafter, and the 10/6 ARM, where the rate is fixed for 10 years and adjusts every six months. These structures offer varying levels of flexibility and risk tolerance, depending on the borrower’s financial goals and market expectations.

Refinancing from an ARM to a fixed-rate mortgage remains a viable option for borrowers whose circumstances change—such as those initially planning to flip a property but deciding to settle in it long-term. The refinancing process is largely similar to switching between fixed-rate loans, with borrowers shopping for the best rates, submitting required documentation, and paying off the existing loan with the new one. However, it is important to consider closing costs, potential prepayment penalties, and the possibility of higher interest rates at the time of refinancing.

The pros and cons of ARMs continue to shape their appeal. On the positive side, ARMs often offer lower initial rates, potentially lower monthly payments if market rates fall, and may have more lenient qualification requirements. However, the potential for rising payments after the fixed period ends is a significant drawback, making ARMs unsuitable for those seeking long-term stability. Additionally, the complexity of ARM terms can make it more challenging to compare loan offers compared to fixed-rate mortgages.

As mortgage markets continue to evolve, the decision to opt for an ARM remains a strategic one, particularly for buyers who are confident in their ability to move or refinance before the adjustment periods begin. For now, the 5-year ARM rate of 6.80% reflects a modest but meaningful position in a broader market that remains closely watched by borrowers and lenders alike.

Source: [1] Current ARM mortgage rates report for Sept. 1, 2025 (https://fortune.com/article/current-arm-mortgage-rates-09-01-2025/) [2] Current ARM mortgage rates report for Aug. 29, 2025 (https://fortune.com/article/current-arm-mortgage-rates-08-29-2025/) [3] Current ARM mortgage rates report for Sept. 3, 2025 (https://fortune.com/article/current-arm-mortgage-rates-09-03-2025/) [4] Compare Today's 5-year ARM Mortgage Rates (https://www.nerdwallet.com/mortgages/mortgage-rates/5-1-arm) [5] Mortgage Rates Slightly Higher to Start September (https://www.mortgagenewsdaily.com/markets/mortgage-rates-09022025) [6] What Is a 10/6 Adjustable-Rate Mortgage (ARM)? (https://www.chase.com/personal/mortgage/education/financing-a-home/10-6-arm)