Adjustable-Rate Mortgages Are Gaining Popularity as Mortgage Rates Rise: Should You Consider an ARM?

If you’re thinking about buying a home, you’ve probably been watching mortgage rates and wondering the same thing as a lot of buyers:
Is there a smarter way to make today’s mortgage payment more affordable?
For some homebuyers, an adjustable-rate mortgage (ARM) may be worth exploring.
According to Homes.com News, adjustable-rate mortgages recently accounted for 10.5% of mortgage applications, the highest share in a year, as the average 30-year fixed mortgage reached 7.4%.
Higher mortgage rates have many buyers taking a closer look at different financing options, including ARMs. But a lower introductory rate does not necessarily mean an ARM is the right mortgage for every buyer.
So, how does an adjustable-rate mortgage work, what are the potential advantages and risks, and what should you consider before choosing one?
Let’s break it down.
Quick Answer: Is an ARM a Good Idea Right Now?
An adjustable-rate mortgage could make sense if its lower introductory rate helps your budget and you understand what could happen when the rate begins adjusting.
Your expected time in the home, financial situation, loan terms, and ability to handle a potentially higher future payment are important factors to discuss with a qualified mortgage lender.
The key is not simply finding the lowest mortgage rate today. It is finding a financing strategy that makes sense for your circumstances and your long-term plans.
What Is an Adjustable-Rate Mortgage?
An adjustable-rate mortgage, commonly called an ARM, is a home loan that typically begins with a fixed interest rate for a specific period.
After that introductory period ends, the interest rate can adjust according to the terms of the loan.
That is different from a traditional fixed-rate mortgage, where the interest rate remains fixed for the life of the loan.
What Is a 5/1 ARM?
One common example is a 5/1 ARM.
With a 5/1 ARM, the initial interest rate remains fixed for five years. After those five years, the rate can adjust once per year.
Homes.com News reported an average 5/1 ARM rate of 6.54%, compared with 7.4% for a 30-year fixed-rate mortgage.
That difference helps explain why adjustable-rate mortgages are getting more attention from homebuyers as mortgage rates rise.
Why Are More Homebuyers Considering ARMs?
The simple answer is affordability.
As fixed mortgage rates rise, some buyers may explore ARMs because of the potential for a lower interest rate during the initial fixed-rate period.
Homes.com News also reported that overall mortgage applications fell 2.7% from the previous week, including a 4% decline in purchase activity and a 0.4% decline in refinance activity.
For buyers who still want or need to purchase a home, higher rates make exploring different financing options increasingly relevant.
But there is an important consideration:
A lower rate today does not automatically mean a better mortgage for you long term.
ARM vs. Fixed-Rate Mortgage: Which Is Better?
Neither option is automatically better. The right choice depends on your individual circumstances.
Fixed-Rate Mortgage
A fixed-rate mortgage provides predictability because your interest rate does not change over the life of the loan.
For buyers who value long-term consistency and plan to stay in their home for many years, that predictability may be important.
Adjustable-Rate Mortgage
An ARM may offer a lower introductory interest rate, but the rate can change after the initial fixed-rate period ends.
That is why one of the most important questions is not simply:
“Which mortgage has the lowest rate today?”
A better question may be:
“Which mortgage makes the most sense for my plans, budget, and financial situation?”
If you are considering an ARM, your expected timeline in the home matters.
Homes.com News notes that a borrower who sells the home or refinances before the initial fixed period ends could benefit from the lower payments without experiencing a rate adjustment.
However, the risk comes if the borrower keeps the ARM and the interest rate adjusts upward.
What Should You Ask Before Choosing an ARM?
Before choosing an adjustable-rate mortgage, have a detailed conversation with a qualified mortgage professional and make sure you understand the specific terms of the loan you are considering.
Here are several questions worth asking:
- How long will my introductory interest rate remain fixed?
- When can my interest rate begin adjusting?
- How often can the interest rate change?
- What are the adjustment caps and lifetime rate caps?
- What could my monthly mortgage payment become if the rate increases?
- How does this ARM compare with a fixed-rate mortgage for my situation?
- What happens if I stay in the home longer than I originally planned?
Personally, I think that last question is especially important.
Life does not always follow the plan we have today.
You do not want to choose a mortgage solely because it works during the first few years. You also want to understand what could happen if your circumstances or plans change.
Should You Wait for Mortgage Rates to Come Down Before Buying?
This is one of the biggest questions buyers ask when mortgage rates are elevated.
Trying to perfectly time interest rates, however, can make the homebuying process even more stressful.
Instead of building your entire homebuying strategy around predicting future mortgage rates, consider focusing on the factors you can control:
What monthly housing payment are you comfortable with?
How much cash do you want to use for your home purchase?
How long do you expect to own the home?
What financing options are available to you?
Does buying a home make sense for your life right now?
Those questions can be much more useful than trying to predict exactly where mortgage rates will go next.
Can You Refinance an ARM Later?
Refinancing may be something borrowers discuss with their lender as their circumstances change, but it should not be viewed as a guaranteed outcome.
Interest rates, property values, borrower qualifications, loan programs, and individual financial circumstances can change.
The Homes.com News report points to the importance of planning for uncertainty and considering whether you could afford a higher payment if an ARM adjusts upward.
In other words:
Do not choose an adjustable-rate mortgage based entirely on the assumption that you will definitely be able to refinance before the initial rate period ends.
Your mortgage professional can help you understand the potential scenarios associated with the specific ARM you are considering.
What Does This Mean for Homebuyers?
If you have been discouraged by higher mortgage rates, the increased interest in ARMs is a reminder that a 30-year fixed-rate mortgage is not the only financing structure buyers may encounter.
That does not mean everyone should rush out and get an adjustable-rate mortgage.
It means it may be worth asking questions, comparing your options, and understanding the numbers before deciding what works for you.
Start by talking with a reputable mortgage professional who can explain the financing choices available based on your individual circumstances.
Once you know the monthly payment you are comfortable with and have established a realistic price range, your real estate agent can help you focus your home search accordingly.
Because ultimately, the goal is not to buy the most expensive house a lender says you can afford.
The goal is to buy a home you can comfortably afford and enjoy.
Frequently Asked Questions About Adjustable-Rate Mortgages
What does ARM stand for in real estate?
ARM stands for adjustable-rate mortgage.
Unlike a fixed-rate mortgage, an ARM has an interest rate that can change after its initial fixed-rate period according to the terms of the loan.
What is a 5/1 ARM?
A 5/1 ARM has an initial interest rate that remains fixed for five years. After that initial five-year period, the rate can adjust once annually.
Why are adjustable-rate mortgages becoming more popular?
As fixed mortgage rates rise, some homebuyers are looking at alternatives that may offer a lower introductory rate.
Homes.com News reported that ARMs recently reached 10.5% of mortgage applications while the average 30-year fixed mortgage rate reached 7.4%.
What is the biggest risk of an adjustable-rate mortgage?
One important risk is that the interest rate may increase after the initial fixed-rate period, potentially resulting in a higher monthly mortgage payment.
That is why buyers should understand the adjustment terms, rate caps, and potential future payments before choosing an ARM.
Who should consider an ARM?
Whether an ARM makes sense depends on several factors, including:
- Your financial situation
- How long you expect to own the home
- How long you expect to keep the mortgage
- The specific ARM terms
- Your monthly budget
- Your tolerance for a payment that could change
- Your ability to handle a potentially higher payment in the future
A qualified mortgage professional can help you compare an ARM with fixed-rate and other available financing options.
Is an ARM better if I plan to move in a few years?
The amount of time you expect to own the home can be an important consideration when evaluating an ARM.
If you expect to sell before the introductory fixed-rate period expires, you may want to ask your lender how an ARM compares with your fixed-rate options.
However, because plans can change, it is also important to understand what your loan could look like if you keep the home longer than expected.
Should I choose an ARM just because the initial rate is lower?
Not necessarily.
A lower introductory interest rate is only one part of the decision.
You should also understand when the rate can adjust, how much it can change, what your future payment could potentially become, and whether that possibility fits comfortably within your financial plans.
Buying a Home in Clarksville or Middle Tennessee?
Mortgage rates are important, but they are only one piece of your homebuying strategy.
If you are considering buying a home in Clarksville, Nashville, Franklin, Brentwood, Spring Hill, Mount Juliet, Lebanon, or another Middle Tennessee community, I can help you understand the local housing market, identify homes that fit your needs and budget, and coordinate with your lender throughout the buying process.
Whether you are a first-time homebuyer, military or veteran buyer, relocating to Middle Tennessee, moving up, downsizing, or purchasing an investment property, the first step is understanding your options.
Your lender handles the mortgage. My job is to help you navigate the real estate side of the process and make informed decisions about the home you are buying.
The Bottom Line
Mortgage rates may be challenging, but buyers still have options.
For some buyers, an adjustable-rate mortgage could provide a more affordable starting point. For others, the predictability of a fixed-rate mortgage may be more appropriate.
There is no single mortgage strategy that is right for everyone.
If you are thinking about buying a home, let’s start with a conversation.
We can talk about what you are looking for, where you want to live, what you are comfortable spending, and what is happening in the local housing market. Then, a qualified mortgage professional can help you understand which financing options may fit your individual circumstances.
You do not need to predict the mortgage market perfectly.
You need a homebuying plan that makes sense for you.
Ready to Start Your Home Search?
If you are thinking about buying a home in Clarksville or Middle Tennessee, reach out to Colleen Marquez and the Homes on the Rock Real Estate Team to start building a home search around your needs, budget, location, and goals.
Let’s find the right home and create a strategy for getting you there.
This article is provided for general informational and educational purposes only and does not constitute financial, mortgage, tax, or legal advice. Mortgage rates, loan programs, qualifications, availability, and terms vary by lender and borrower. Consult an appropriately qualified mortgage, financial, tax, or legal professional regarding your individual circumstances.
Source
Homes.com News: ARM Demand Hits Highest Level in a Year as Mortgage Rates Climb
https://www.homes.com/news/arm-demand-hits-highest-level-in-a-year-as-mortgage-rates-climb/2066538922/
Have questions? Ask Colleen! Text “ARM” to 629-276-9797 for more information.
- What is an adjustable-rate mortgage?
- Is an ARM a good idea?
- What is a 5/1 ARM?
- Is an ARM better than a fixed-rate mortgage?
- Why are ARM mortgages becoming more popular?
- What are the risks of an adjustable-rate mortgage?
- Can you refinance an ARM?
- Should you wait for mortgage rates to fall before buying a home?



