ARMs' Initial Savings vs. Potential Payment Jumps

As of October 9, 2025, adjustable-rate mortgages (ARMs) remain a topic of interest for homebuyers navigating a mixed-rate environment. National averages for 5/1 ARMs, which offer a fixed rate for the first five years before annual adjustments, stood at as of September 15, 2025, according to Bankrate. However, Zillow data from October 1, 2025, reported a slightly higher average of for 5-year ARMs, reflecting regional and lender-specific variations. These discrepancies underscore the importance of comparing lenders and understanding local market dynamics.

State-level 5-year ARM rates vary significantly, with credit unions, online lenders, and banks offering different terms. For instance, credit unions provided rates of for borrowers with credit scores of 720–850, while banks charged under the same conditions, per MFP's survey. Wyoming had the lowest rates at for high-credit borrowers, whereas Missouri's credit unions reported . These variations highlight the role of lender type, creditworthiness, and down payment size in shaping ARM rates.

The transition from LIBOR to SOFR as the benchmark index has also influenced ARM structures. Zillow noted that 5/1 ARMs are now tied to SOFR, with the latest SOFR rate at on October 6, 2025. This shift has introduced new adjustment mechanics, including caps on rate increases, which limit how much borrowers' payments can rise after the fixed period. For example, a 5/6 ARM adjusts every six months, potentially mitigating volatility compared to the now-defunct 5/1 ARMs.

Market analysts emphasize the trade-offs between ARMs and fixed-rate mortgages. While 30-year fixed rates averaged in late September, ARMs offered initial savings of 75–100 basis points for borrowers planning to refinance or sell within the fixed period. However, the risk of future rate hikes remains a concern. A $400,000 5/1 ARM at 5.90% could see payments rise by if rates increase by 1–3 percentage points post-adjustment. This volatility makes ARMs more suitable for short-term owners or those expecting income growth.

Economic uncertainty and Federal Reserve policy also play a role. With the Fed maintaining its benchmark rate unchanged in 2025, market observers speculate about potential rate cuts later in the year, which could stabilize ARM rates or even reduce them. However, any decline is unlikely to offset the long-term risks for borrowers holding ARMs beyond their initial fixed periods.

Sources:

[1] MFP's Community Home Purchase Rates Survey (https://www.myfinancialprograms.com/savings/mortgage/home-purchase/5-arm/)

[2] Bankrate (https://www.bankrate.com/mortgages/arm-loan-rates/)

[3] Zillow (https://www.zillow.com/mortgage-rates/5-year-arm/)

[5] Fixed vs Adjustable Rate Mortgages: 2025 Analysis (https://myperfectmortgage.com/fixed-vs-adjustable-rate-mortgages-2025-analysis/)

[6] Fixed vs ARM Rates: Current Market Comparison (https://www.homeloanagents.com/2025/03/06/fixed-vs-arm-rates-current-market-comparison/)

[7] Fortune (https://fortune.com/article/current-arm-mortgage-rates-10-01-2025/)

[8] SOFR Rate Updates (https://www.sofrrate.com/)