Mortgage rates are soaring, with 5-year adjustable-rate mortgages (ARMs) hitting 7.67% and 7-year ARMs at 7.56%. Meanwhile, fixed-rate mortgages dominate 92% of U.S. lending. What does this mean for homebuyers and investors? Let’s break it down.
Why Are ARM Rates Rising?
According to Zillow data analyzed by Fortune, ARM rates have surged due to market volatility and rising benchmark rates like SOFR. Here’s a quick comparison:
- 5-year ARM: 7.67% (initial fixed period)
- 7-year ARM: 7.56% (initial fixed period)
- Fixed-rate mortgages: Dominating 92% of loans
Fixed-Rate Mortgages: The Safe Choice?
With 92% of U.S. lending in fixed-rate mortgages, borrowers clearly prefer stability. Key benefits include:
- Predictable payments
- Protection against rate hikes
- Long-term financial planning ease
Who Should Consider Adjustable-Rate Mortgages?
Despite higher risks, ARMs suit specific borrowers:
- Starter home buyers: Plan to sell before rates adjust
- Investors: Short-term property flips or rentals
- High-rate navigators: Betting on future rate drops
Risks of Adjustable-Rate Mortgages
ARMs come with volatility:
- Unpredictable payment hikes
- Complex terms (caps, margins, adjustment intervals)
- Refinancing challenges
Actionable Insights for Borrowers
If you’re considering an ARM:
- Compare lender margins (typically 2%-3.5%)
- Understand adjustment caps
- Have an exit strategy (refinance or sell)
While fixed-rate mortgages dominate, ARMs remain a strategic tool for niche borrowers. Evaluate your financial goals and risk tolerance before deciding.
Frequently Asked Questions (FAQs)
What is the current 5-year ARM rate?
As of July 30, 2025, the average 5-year ARM rate is 7.67%.
Why do fixed-rate mortgages dominate U.S. lending?
Fixed-rate mortgages offer payment stability, making them the preferred choice for 92% of borrowers.
Who benefits from adjustable-rate mortgages?
ARMs suit starter home buyers, investors, and those betting on future rate drops.
What are the risks of ARMs?
Risks include unpredictable payment increases and complex terms.
