As the war in Iran rages on, mortgage rates are going up.
The housing market got a bit of a boost earlier this year when the 30-year fixed-rate mortgage dipped below 6% for the first time in years. But barely a month later, the popular product stood at 6.38%. Late March saw the biggest one-week surge since April 2025, when the White House made its first shock-and-awe tariff announcements.
This isn’t the highest rates have been in recent years, but with home prices still elevated and many Americans struggling to afford higher prices on everything from milk to gas, borrowers need all the help they can get. That’s why adjustable-rate mortgages (ARMs) are getting another look.
ARMs offer borrowers a set rate for an introductory period of time, say five or seven years. After that period, they become adjustable — typically floating up or down, usually by tracking an index such as SOFR, which is one measure of how much banks pay to borrow.
A standard 30-year fixed-rate mortgage can be “reliable,” said Scott Bridges, chief consumer direct production officer at Pennymac, one of the country’s largest lenders. ARMs, on the other hand, can be “strategic,” Bridges told USA Today.
“They give you a long window to have a lower rate, a lower payment, and the ability to refinance to a fixed-rate loan when rates drop.”
Using the most recent rates available in the March 23 week, Hannah Jones, a senior economist at Realtor.com calculated the savings from using a 5/1 adjustable-rate mortgage at about $185 a month for the median priced home with a 10% down payment.
And a recent analysis from Cotality, a data provider, noted that ARMs are enjoying a renaissance “in high-cost markets where the affordability gap is widest. In California, ARMs accounted for more than 31% of mortgage originations in 2025, and similar surges occurred in the District of Columbia (28%) and Massachusetts (~24%).”
In those areas, Cotality said, ARMs are “a crucial option for those looking to break into the market or upgrade to a larger home.”
All across the country, ARMs accounted for a little more than 8% of all mortgage applications in late March, Mortgage Bankers Association data show.
ARMs may have gotten a bit of a bad rap during the subprime crisis, when mortgage lenders were offering — and borrowers gladly taking — all kinds of exotic loan products. And in the years after the bust, interest rates were generally so low that they didn’t offer much advantage compared to the 30-year fixed-rate mortgage, which can feel much safer.
As Realtor.com’s Jones explained in an email, “Buyers who remain in their home beyond the fixed-rate period face the risk of their rate adjusting upward, potentially erasing those early savings and adding meaningful volatility to their monthly budget at a time when housing costs are already stretching household finances.”
It’s also important to note that ARM terms can vary widely. For example, some adjust both up and down alongside other rates, but some only ever adjust upward. On the other hand, some cap the maximum interest rate that you may pay.
What is a mortgage rate buydown?
Many housing professionals prefer rate buydowns to adjustable-rate mortgages. A buydown allows the borrower to pay a set amount upfront for a lower rate in the initial few years of the loan.
Dave Nichols, a loan officer with NBKC Bank in Kansas City, explains the 2-1 buydown, which he sees often, this way: if the 30-year fixed-rate mortgage costs 6.50%, the borrower would pay 4.50% for the first year and 5.50% during the second year, before resetting to 6.50% for the life of the loan.
Buydowns have a few advantages, Nichols said. Among them: they offer bigger savings up front. Also, buydowns can be a smart way to use credits from a seller. Those concessions often match up well to the amounts saved in the first two years of the buydown term.
For a home costing about $400,000, a typical monthly payment might be about $2,000, Nichols said. But the first year of a 2-1 mortgage could bring that to as little as $1,600.
Trusted mortgage professionals can help
One of the smartest steps any borrower can take might be to work with a trusted lender.
Rates are likely to remain elevated — and volatile — as long as hostilities in the Middle East continue. But Nichols points out that lenders can also help borrowers understand the nuances involved in planning to refinance down the road.
“Find someone who takes the time to talk with you about your situation,” he said.
Story by Andrea Riquier, USA Today via Reuters Connect
