ARM rates climb amid high interest environment, 5-year average hits 7.22% as of Aug. 25, 2025

As of Aug. 25, 2025, the current average rate on 5-year adjustable-rate mortgages (ARMs) stands at 7.22%, according to data from Zillow, a major real estate marketplace [1]. Meanwhile, the average rate for 7-year ARMs is 7.13% [1]. These figures reflect the latest in a series of ARM rate reports that have tracked the performance of these loan products over the past several years, particularly during a period of elevated interest rates.

Adjustable-rate mortgages remain a less popular choice compared to fixed-rate mortgages, which are held by approximately 92% of U.S. households with mortgages [1]. However, ARMs continue to represent a viable option for certain segments of the market, including those who plan to hold their homes for a short duration, real estate investors seeking short-term gains, and buyers entering the market during periods of high interest rates [1]. These mortgage products offer lower initial interest rates during a fixed period, typically lasting between three to 10 years, after which the rate adjusts based on prevailing market conditions and a pre-determined margin [1].

The mechanics of ARMs involve an initial fixed-rate period followed by an adjustment phase. During this phase, the interest rate is influenced by factors such as the Secured Overnight Financing Rate (SOFR), lender-imposed margins, and rate caps that limit how much the rate can rise over time [1]. For example, a 5/1 ARM provides a fixed rate for five years, after which the rate adjusts annually for the remainder of the 30-year term. Similarly, a 10/6 ARM offers a fixed rate for 10 years before adjusting every six months over the remaining 20 years [1].

Refinancing from an ARM to a fixed-rate mortgage is a common strategy for homeowners who initially opted for an ARM for short-term benefits but later seek more stable payments [1]. This process is relatively straightforward and mirrors the procedure for refinancing between fixed-rate mortgages. As of 2024, a growing number of younger homeowners, particularly Millennials and Gen Z, are choosing to remain in their starter homes due to affordability challenges, increasing the likelihood they may pursue this form of refinancing [1].

Despite the potential advantages, ARMs also carry risks. The most notable is the potential for significant increases in monthly payments once the fixed period ends. For instance, if a $400,000 mortgage with a 7% rate were to adjust to 12%, the monthly payment could jump from approximately $2,661 to $4,114, a 54.6% increase [1]. Additionally, ARMs can be more complex to compare across lenders due to the varying components involved, making it harder for borrowers to identify the most favorable terms [1].

For some, the trade-off between lower initial rates and potential future uncertainty is worth the risk. In particular, real estate investors and homeowners with short-term plans may benefit from the flexibility and initial cost savings provided by ARMs. However, for those seeking long-term financial stability, fixed-rate mortgages remain the preferred option [1].

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[1] Current ARM mortgage rates report for Aug. 25, 2025, https://fortune.com/article/current-arm-mortgage-rates-08-25-2025/