Adjustable-Rate Mortgages Reach 9.8% of Applications as Fixed Rates Top 7%

Adjustable-Rate Mortgages Reach 9.8% of Applications as Borrowers Seek Relief From Higher Rates

Adjustable-rate mortgages are gaining ground as a widening gap between fixed and adjustable mortgage rates gives borrowers a stronger incentive to consider loans with lower initial rates.

ARMs accounted for 9.8% of total mortgage applications during the week ending Sept. 18, according to the Mortgage Bankers Association’s latest Weekly Mortgage Applications Survey. The shift came as MBA’s average contract rate for conforming 30-year fixed-rate mortgages climbed to 7.12%, its highest level since May 2024. MBA

At the same time, MBA’s average rate for 5/1 adjustable-rate mortgages fell to 6.10% from 6.23% a week earlier. That put the surveyed ARM rate more than a full percentage point below the 30-year fixed rate — a spread large enough to make the lower introductory rate increasingly relevant for borrowers confronting affordability pressures. MBA

Why More Borrowers Are Turning to ARMs

The appeal is straightforward: borrowers can obtain a substantially lower initial interest rate than they would with a conventional fixed-rate mortgage.

MBA Chief Economist Mike Fratantoni specifically linked the increase in ARM activity to the widening rate differential. With fixed rates moving sharply higher, he said more borrowers chose ARMs as 5/1 ARM rates stood more than one percentage point below fixed rates. MBA

The latest MBA survey illustrates the divergence.

The rates are MBA survey averages for the week ending Sept. 18 and include varying points and loan assumptions, so they should not be interpreted as rates available to every borrower. MBA

For borrowers focused on the initial cost of financing, the difference between 7.12% and 6.10% can be meaningful.

On a hypothetical $400,000 loan amortized over 30 years, for example, principal and interest at 7.12% would be about $2,693 per month. At an initial rate of 6.10%, the comparable payment would be about $2,424 — roughly $269 less per month.

That illustration excludes taxes, insurance, mortgage insurance, fees and other costs and does not account for future ARM adjustments. Actual borrower pricing and payments vary.

The Lower Initial Rate Comes With Future Rate Risk

An ARM does not simply provide a permanently discounted mortgage rate.

Unlike a fixed-rate mortgage, which keeps the interest rate unchanged for the life of the loan, an adjustable-rate mortgage generally provides an initial fixed-rate period before the rate can change according to the loan's terms.

With a 5/1 ARM, for example, the initial interest rate generally remains fixed for five years. After that period, the rate can adjust periodically based on the loan's specified index, margin and adjustment limits.

That makes the initial rate only part of the comparison.

Borrowers evaluating an ARM also need to understand when the first adjustment occurs, how frequently subsequent adjustments can occur, what index and margin determine the new rate, and the loan's initial, periodic and lifetime adjustment caps.

The lower introductory payment can therefore reduce near-term borrowing costs without eliminating longer-term interest-rate risk.

Fixed Mortgage Rates Jumped 15 Basis Points

The renewed interest in ARMs comes during a sharp move higher in fixed mortgage rates.

MBA's conforming 30-year fixed rate increased to 7.12% from 6.97% in one week, a 15-basis-point increase. Points also edged higher to 0.73 from 0.72, including the origination fee, for loans with an 80% loan-to-value ratio. MBA

The increase extended a recent rise in borrowing costs. MBA's survey showed the conforming 30-year rate at 6.97% for the week ending Sept. 11. MBA

Freddie Mac's separate Primary Mortgage Market Survey put the average 30-year fixed rate at 6.95% as of Sept. 17. The two surveys use different methodologies, so their readings should not be treated as interchangeable. Stock Titan

Higher Rates Are Also Cutting Mortgage Demand

The shift toward ARMs isn't translating into stronger overall mortgage demand.

MBA's Market Composite Index, which measures application volume, declined a seasonally adjusted 1.5% for the week ending Sept. 18. Purchase applications fell 1%, while refinance applications dropped 3%. MBA

Refinance activity was 62% below its level during the same week in 2025, and Fratantoni said refinancing had fallen to its slowest pace since February 2025. The refinance share of all mortgage applications slipped to 39.3% from 39.4%. MBA

The numbers suggest borrowers are adapting to higher rates rather than producing a broad rebound in mortgage demand.

ARMs Can Become More Relevant When the Rate Gap Widens

Adjustable-rate mortgages tend to become more economically compelling when their initial rates fall significantly below comparable fixed rates.

The latest MBA data presents exactly that environment: the surveyed 5/1 ARM rate declined while the 30-year fixed rate increased.

For some borrowers, particularly those who expect to own a property for less than the initial fixed period, that difference may make an ARM worth comparing with fixed-rate alternatives. But plans can change, home values can fall, and refinancing later is never guaranteed.

The key tradeoff is therefore between greater payment certainty and a lower initial borrowing cost.

With fixed mortgage rates back above 7% in MBA's survey and 5/1 ARMs at 6.10%, nearly one in 10 applications are now going toward adjustable-rate financing. Whether that share keeps rising will depend in large part on what happens to the gap between fixed and ARM rates in the weeks ahead.