Mortgage Market Tightens as 5-Year and 7-Year ARM Rates Rise to 7.13% and 6.88%

As of Aug. 5, 2025, the average rate on 5-year adjustable-rate mortgages (ARMs) has risen to 7.13%, according to Zillow, a major real estate platform [1]. The 7-year ARM average rate is also reported at 6.88%, reflecting a broader tightening in the mortgage market [1]. These figures were compiled from data reviewed as of the previous business day, Aug. 4, 2025 [1].

Fixed-rate mortgages continue to dominate the U.S. housing market, with approximately 92% of mortgage holders opting for this option. Unlike ARMs, which feature an initial fixed interest rate period followed by periodic adjustments, fixed-rate mortgages offer a consistent interest rate over the life of the loan. This stability is a major reason for their widespread adoption [1].

However, ARMs remain a viable choice for certain types of borrowers. The data suggests that about 8% of mortgage holders find the structure of ARMs appealing, particularly for short-term or investment properties. For example, homebuyers who expect to move within a few years may benefit from the lower introductory rates of ARMs, as they can sell before the adjustment period begins [1]. Similarly, real estate investors may utilize ARMs to secure a low initial rate and adjust rents if rates rise.

Buyers in high-interest-rate environments may also consider ARMs, as these loans often provide more favorable terms in the short term. If economic conditions improve, future rate reductions are possible, potentially leading to lower monthly payments [1].

Adjustable-rate mortgages typically begin with a fixed interest rate period—commonly three, five, seven, or 10 years—before transitioning into an adjustment phase. The adjustment of ARM rates depends on several factors, including benchmark rates such as the Secured Overnight Financing Rate (SOFR), lender margins, and rate caps that limit how much the rate can change over specific intervals or throughout the loan’s life [1]. Most ARMs have 30-year terms, and common structures include the 5/1 ARM (five years fixed, annual adjustments), 7/1 ARM (seven years fixed), and 10/1 ARM (10 years fixed).

Homeowners with ARMs also have the option to refinance into a fixed-rate mortgage if their circumstances change, such as deciding to stay in the home longer than initially anticipated. The process involves comparing rates at various lenders, submitting documentation, and closing on a new loan to pay off the existing one [1].

While ARMs can offer potential benefits such as lower initial interest rates and more flexible borrowing requirements, they also come with risks. The primary drawback is the potential for rising monthly payments after the fixed period ends, which can create financial uncertainty. Additionally, the complexity of ARM terms can make it more difficult for borrowers to compare options effectively compared to fixed-rate loans [1].

Source: [1]Current ARM mortgage rates report for Aug. 5, 2025 (https://fortune.com/article/current-arm-mortgage-rates-08-05-2025/)