ARM Rates Edge Higher as 5-Year and 7-Year Rates Hit 7.25% and 7.30%

On August 19, 2025, the current average rate on 5-year adjustable-rate mortgages (ARMs) was reported to be 7.25%, according to data from Zillow, a major real estate marketplace [1]. The 7-year ARM rate stood at 7.30%, offering a marginal increase compared to the 5-year version [1]. This data follows a review of Zillow’s most recent mortgage rate report, which was current as of August 18, 2025 [1].

Fixed-rate mortgages remain the dominant choice among U.S. homeowners, with approximately 92% opting for this type of loan due to its long-term stability [1]. In contrast, adjustable-rate mortgages—while less common—can be a strategic option for specific groups of buyers. These include short-term or starter home buyers who plan to sell before the rate adjusts, real estate investors who may benefit from initial low rates, and homebuyers purchasing during periods of high-interest rates who may see potential for lower rates in the future [1].

Adjustable-rate mortgages typically begin with a fixed interest rate for a set period—commonly 3, 5, 7, or 10 years—after which the rate adjusts annually or at other intervals, based on factors such as benchmark rates, lender margins, and rate caps [1]. For example, the 5/1 ARM has a fixed rate for five years, followed by annual adjustments, while the 7/1 ARM maintains a fixed rate for seven years before adjustments [1].

The interest rate on an ARM is often tied to the Secured Overnight Financing Rate (SOFR), which is published daily by the U.S. Treasury. Lenders add a fixed margin—typically between 2% and 3.5%—to this benchmark to determine the final rate, which can also be limited by caps to prevent large increases during or over the life of the loan [1].

Homeowners with ARMs may choose to refinance to fixed-rate mortgages if they plan to stay in their homes longer than initially expected. The process involves comparing rates, providing documentation, and closing a new loan to pay off the existing one [1]. This option is increasingly considered by younger homeowners, such as Millennials and Gen Z, who find themselves staying in starter homes longer due to market conditions [1].

While ARMs offer the potential for lower initial interest rates and more flexible borrowing requirements, they also come with notable risks. These include the possibility of higher monthly payments after the fixed period ends, more complex terms that make rate comparisons challenging, and less long-term financial stability compared to fixed-rate mortgages [1]. Buyers are advised to work closely with a trusted loan officer to determine whether an ARM aligns with their financial goals and risk tolerance [1].

Sources:

[1] Current ARM mortgage rates report for Aug. 19, 2025 (https://fortune.com/article/current-arm-mortgage-rates-08-19-2025/)