Why More Buyers Are Considering Adjustable-Rate Mortgages (ARMs)
source: MBA
With today’s housing market remaining competitive and interest rates fluctuating, many homebuyers are looking for ways to reduce their monthly payments at least in the short term. One option gaining popularity? Adjustable-rate mortgages, or ARMs.
What Is an Adjustable-Rate Mortgage?
An adjustable-rate mortgage is a home loan with an interest rate that changes after an initial fixed period. The most common ARMs offer a low introductory rate for a set number of years such as 5, 7, or 10 before the rate begins to adjust annually based on the market.
Why Buyers Are Turning to ARMs in 2025
One of the main appeals of ARMs is the lower upfront payments. When compared to fixed-rate mortgages, which lock in a single rate for the life of the loan, ARMs can significantly reduce monthly costs during the initial fixed period. This can be especially attractive for:
Buyers expecting their income to increase in the near future
Those planning to sell or refinance before the adjustable period begins
First-time homebuyers trying to ease into homeownership
Are ARMs Safe in Today’s Market?
Many people still remember how risky ARMs contributed to the 2008 housing crisis. But today’s ARMs are much different. Thanks to tighter lending standards, borrowers are better protected:
Most ARMs now include caps that limit how much the interest rate can increase.
Lenders require higher credit scores and thorough financial vetting.
Borrowers are typically more educated on how ARMs work and their potential risks.
Should You Consider an ARM?
ARMs aren’t for everyone. Once the initial fixed period ends, your interest rate (and monthly payment) could rise, potentially by a significant amount. That’s why it’s important to:
Understand the terms of the loan, including rate caps and adjustment schedules
Consider your long-term financial goals and risk tolerance
Talk to a trusted lender or mortgage advisor to explore all available options
The Bottom Line
As more buyers explore adjustable-rate mortgages to navigate today’s real estate market, it’s crucial to weigh the pros and cons carefully. ARMs can be a smart financial tool in the right situation but they’re not a one-size-fits-all solution.
Thinking about an ARM? Let’s connect you with a trusted lending partner so you can make the best decision for your future home.