Current guide to ARM mortgage rates

Most homebuyers choose fixed-rate mortgages, but there are situations where an adjustable-rate mortgage can be worth a closer look. ARMs may appeal to people buying a property they plan to rent out or renovate and sell, as well as buyers who expect to move within a few years, before the introductory fixed-rate period ends and the rate begins to adjust.

Below, we break down how ARMs work, when they may make more sense than a fixed-rate loan, and what average ARM rates look like based on Mortgage Research Center data.

You can view the previous business day's ARM rates report here.

Average ARM mortgage rates

ARMs are available in several formats, depending on how long the introductory fixed-rate period lasts and how often the rate resets afterward. A 7/6 ARM, for example, keeps the rate fixed for seven years before adjusting every six months.

Fortune reviewed the latest MRC data available as of the most recent update.

Fixed-rate vs. adjustable-rate mortgages

About 92% of mortgage holders have fixed-rate loans. Unlike an ARM, where the interest rate can change after the initial fixed term, a fixed-rate mortgage keeps the same rate for the full life of the loan. That stability helps explain why it is such a popular choice.

Still, ARMs can be practical in certain situations, which is why roughly 8% of mortgage borrowers choose them.

When an adjustable-rate mortgage may be a good fit

These three types of buyers often find ARMs useful:

• People buying temporary or starter homes. If you expect to move fairly soon, an ARM can be a strategic choice because you may benefit from the lower introductory rate and sell before the adjustment period begins.
• Investors. Real estate investors often like ARMs for the same reason. They can lock in a relatively low rate at first and then, as the reset date approaches in three, five, or seven years, raise rent to help cover the new payment or sell the property and move on to the next deal.
• Buyers facing high interest rates. Some buyers choose ARMs during high-rate periods because they may offer a lower starting rate and potentially a lower rate later on, assuming market conditions ease before the fixed period ends.

How adjustable-rate mortgages work

ARMs usually begin with a low fixed rate for a set number of years, such as three, five, seven, or 10. Once that fixed period ends, the loan enters the adjustment period.

At that point, the interest rate can move based on several important factors, including:

• Benchmark rates. ARMs often use a benchmark such as the Secured Overnight Financing Rate, or SOFR, as the base rate. The U.S. Treasury publishes a new SOFR each morning to show banks and lenders the cost of borrowing cash, which helps set market-based rates for products ranging from auto loans to mortgages.
• Margins. A margin is the fixed percentage a lender adds to the index to determine your ARM rate. For example, if a loan is tied to SOFR and SOFR is 5% while the margin is 2%, the resulting rate would be 7%. Margins usually fall between 2% and 3.5% and can vary by lender, loan type, and credit profile. Because the margin is locked into the loan agreement, it pays to compare offers carefully.
• Rate caps. Caps limit how much your rate can increase over the life of the loan. Initial caps control the first adjustment, subsequent caps govern later increases, and lifetime caps set the maximum total rise.

The most common ARM structure may be the 5/1, which means the rate stays fixed for five years and then adjusts once a year for the remaining 25 years of a typical 30-year loan.

Another common version is the 10/6 ARM, which includes a 10-year fixed period followed by a 20-year adjustment period, with changes every six months. You may also see 3/1, 7/1, and 10/1 ARMs.

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Refinancing from an ARM to a fixed-rate mortgage

Even if an ARM made sense when you bought your home, you may later decide a fixed-rate mortgage is the better long-term option. For example, you may realize your first home is actually your forever home. That situation is not unusual; research from 2024 found that many Millennial and Gen Z homeowners cannot afford to move up and are staying put in starter homes.

Whatever the reason, it is possible to refinance from an ARM into a fixed-rate mortgage. In fact, that is a common reason many ARM borrowers refinance.

The process is similar to refinancing from one fixed-rate loan to another. You apply with several lenders to compare offers, submit the required documents, close on the new loan, and pay off the old one in full.

Pros and cons of adjustable-rate mortgages

Like any mortgage, ARMs have advantages and drawbacks. Lenders ultimately decide which loan type fits your profile, but understanding the basics can help you budget and navigate the early stages of the process.

Pros

• Lower initial interest rate. Lenders often offer ARM borrowers a lower rate than fixed-rate borrowers during the introductory period.
• Potentially easier qualification. Because the initial payment is lower, some lenders may be more flexible with ARM applicants than with fixed-rate borrowers.
• Payments could fall. If interest rates drop before the fixed period ends, your monthly payment could end up lower.

Cons

• Payments could rise. Once the fixed period ends, your rate can increase up to the loan's lifetime cap, which is often as much as five percentage points above the starting rate. As an example, if a $400,000 loan rose from 7% to 12%, the monthly payment would increase from about $2,661 to around $4,114, or by $1,453, which is about 54.6%.
• Harder to compare offers. With fixed-rate loans, it is usually easier to compare lenders directly. ARMs have more moving parts, which can make it harder to identify the best deal upfront.
• Less certainty. Even as taxes and insurance change over time, fixed-rate borrowers know their core mortgage payment will stay the same. ARM borrowers may benefit from a lower starting rate, but they give up that long-term predictability.