Is an adjustable rate mortgage right for you?

With interest rates climbing again, more homebuyers are looking for creative ways to make monthly payments more affordable—and for many, that means turning to adjustable-rate mortgages (ARMs). According to the Mortgage Bankers Association, ARM loan applications have surged, reaching their highest share since November 2023. But while the initial appeal is clear—lower starting rates—ARMs come with trade-offs that every buyer should carefully consider.

What is an adjustable-rate mortgage?
Unlike a traditional fixed-rate mortgage, which locks in your interest rate for the life of the loan, an ARM begins with a lower rate for a set period (typically 5, 7, or 10 years) and then adjusts periodically based on market conditions. These adjustments can raise or lower your monthly payment, depending on interest rate trends.

Why are ARMs so popular right now?
The recent increase in mortgage rates is prompting more buyers to consider ARMs. In mid-April 2025, the average rate for a 30-year fixed mortgage reached 6.81%, a 20-basis-point increase in just one week. At the same time, ARM interest rates remained closer to 6%, making them a more appealing short-term solution for borrowers seeking to reduce their monthly costs.

Mike Fratantoni, Chief Economist at the Mortgage Bankers Association, noted that “almost a quarter of the application volume last week was for ARMs,” especially among borrowers with larger loans. “The ARM share at 9.6 percent was the highest since November 2023,” he added, underscoring the growing interest in these loans as fixed rates climb.

The pros of ARMs:

• Lower initial payments: You’ll likely pay less each month during the fixed-rate period compared to a fixed-rate loan.
• Short-term savings: If you plan to move or refinance before the adjustment period takes effect, you can take advantage of lower rates without incurring long-term risk.
• Qualification flexibility: Lower starting rates may make it easier to qualify for a larger loan.

The cons of ARMs:

• Rate uncertainty: Once the fixed period ends, your interest rate (and monthly payment) could rise significantly.
• Budgeting challenges: Future payments can be more difficult to predict, especially in a volatile interest rate environment.
• Long-term risk: If rates climb or your financial situation changes, you could end up paying much more than with a fixed-rate mortgage.

Bottom line
An ARM can be a smart move for some buyers, especially those who don’t plan to stay in their home long-term, but it’s not right for everyone. Be sure to weigh the upfront savings against the potential for higher costs down the road. And no matter which loan type you choose, it’s always wise to consult your PRMI loan advisor. They can help you run the numbers and explore the best fit for your goals. https://www.primeres.com/southflorida