Adjustable-rate mortgages now account for 18% of all mortgage applications, the highest share since 2008, as borrowers bet that interest rates will fall in the coming years.
Why ARMs Are Trending
With 30-year fixed rates hovering near 6.2%, 5/1 ARMs are available at 5.1% — saving borrowers over $200/month on a $400,000 loan. Many buyers are choosing ARMs with plans to refinance when rates drop.
Types of ARMs Available
- 5/1 ARM: Fixed for 5 years, then adjusts annually (5.1% avg)
- 7/1 ARM: Fixed for 7 years (5.4% avg)
- 10/1 ARM: Fixed for 10 years (5.7% avg)
Risks to Consider
If rates rise instead of falling, monthly payments could increase by $500-800 at the first adjustment. Rate caps limit increases to 2% per adjustment and 5% over the loan life, but borrowers should stress-test their budgets for worst-case scenarios.
