Around 10% of purchase-mortgage applications submitted during the week ending October 3, 2025, were for adjustable-rate mortgages (ARMs) — the highest level since 2023, according to Mortgage Bankers Association (MBA) data reported on by The Wall Street Journal (1).
More recently, the association said that last month ARM loans accounted for 25% of mortgage applications for new home purchases, up from 16% a year ago (2). This increased use of ARM loans contributed to the jump in new home sales and a slightly higher average loan size, according to Joel Kan, MBA’s vice president and deputy chief economist.
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In a housing market where home prices have increased by more than 50% since 2019 and interest rates remain high, many buyers are seeking creative ways to make their monthly payments more manageable. For some, ARMs are the answer.
Adjustable-rate mortgages usually offer a lower interest rate at the start — often for 3 to 10 years — before “resetting” based on current market rates. That initial discount can make a big difference in affordability, but once the fixed period ends, monthly payments can increase substantially.
Still, many buyers are betting that mortgage rates will fall in the coming years, allowing them to refinance before the rate resets — but experts say it could be a risky move.
What are the risks of an adjustable-rate mortgage?
At first glance, ARMs seem to be a smart way to save money. The average seven-year ARM interest rate is approximately half a percentage point lower than that of a 30-year fixed mortgage, according to Bankrate (3). However, the lower rate comes with a significant caveat: once the initial fixed rate term ends — typically between 3 and 10 years — the rate adjusts to match the current interest rate, regardless of whether it’s higher or lower.
If rates rise during that time, your monthly payment after the ARM term ends will as well. For some borrowers, that could mean paying hundreds of dollars more each month. The risk is especially high if you can’t refinance due to a job loss or a change in your financial situation.
“We see more borrowers trying to get rates in the 5% range to make their monthly payments more affordable,” said Scott Bridges, a Pennymac executive who oversees consumer lending, to the Journal. “Typically with an ARM loan, that’s one of the only ways you’re going to get there.”
This isn’t the first time Americans have turned to ARMs for relief. In the early 2000s, roughly a third of all mortgage applications were for adjustable-rate loans. When those rates reset just a few years later, many borrowers couldn’t keep up — and millions lost their homes in the 2008 housing crash that followed.
Today’s ARMs are less risky, thanks to tighter lending standards and limits on how much rates can rise over time. Borrowers must now meet more stringent income and credit requirements, and caps on rate adjustments help prevent the sharp payment spikes that burned homeowners 20 years ago. But is it the right choice for you?
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How to decide whether an ARM is right for you?
For some buyers, the math still works. If you plan to sell or refinance within the next five to 10 years, an ARM can make short-term financial sense — especially if you’re stretching to afford a home now. “It really just comes down to the expectation that the Fed will continue to cut rates over the next several years and the affordability that it offers in the immediate period,” said Max Lynch, who bought a home in Illinois with a seven-year ARM, to the Journal.
However, that strategy assumes everything goes right: that rates fall, that you remain financially stable, and that your home value doesn’t drop. If those assumptions don’t hold, you could end up paying significantly more than you would have with a fixed-rate mortgage.
Here are a few questions to ask before deciding:
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How long will you stay in the home? If you plan to move or refinance within a few years, an ARM may be a good option for accessing a lower interest rate.
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Can you handle a higher payment later? Calculate your monthly cost if rates rise by two to three percentage points and consider the impact this will have on your budget.
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What’s your job and income stability? The ability to refinance later depends on consistent income and a good credit profile. If there’s a chance that might change, an ARM could be riskier for you.
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How much risk are you comfortable with? A fixed-rate mortgage costs more upfront but offers long-term peace of mind — and fixed-rate mortgages can often be refinanced if rates drop in a few years.
Adjustable-rate mortgages can help buyers bridge the affordability gap in today’s market — but they aren’t without risk. With home prices and insurance costs still climbing, ARMs may seem like the only way to secure a home within budget. But before signing, it’s crucial to plan for the “what ifs.”
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
The Wall Street Journal (1); Mortgage Bankers Association (2); Bankrate (3)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.