Mortgage Rates for ARM (Adjustable-Rate Mortgages) Decline Compared to Previous Week - June 28, 2025

Mortgage Rates for ARM (Adjustable-Rate Mortgages) Decline Compared to Previous Week - June 28, 2025

In the ever-evolving world of mortgages, Adjustable-Rate Mortgages (ARMs) continue to be a popular choice for homebuyers seeking lower initial costs. However, understanding the factors that influence ARM rates is crucial when deciding between an ARM and a fixed-rate mortgage.

One significant factor is benchmark rates, such as the Secured Overnight Financing Rate (SOFR), which reflects banks' cost of borrowing cash. Published daily by the U.S. Treasury, this benchmark fluctuates with market conditions, and when it rises or falls, the interest rate on an ARM adjusts accordingly during its adjustment period.

Lenders add a fixed margin—typically between 2% and 3.5%—to the benchmark rate to determine the ARM’s interest rate. This margin varies depending on factors such as the lender’s policies, the specific loan terms, and the borrower’s creditworthiness.

ARMs also include caps that limit how much the interest rate can increase during each adjustment period and over the life of the loan. These caps protect borrowers from extreme rate spikes but do not prevent moderate increases.

Individual credit score, down payment size, debt-to-income ratio, and the loan term influence the margin offered and, therefore, the overall ARM rate. Better credit and financial profiles can secure lower margins and rates.

Broader economic factors, including Federal Reserve policy and Treasury yields, indirectly affect ARM rates since they impact benchmark rates like SOFR. For instance, when the Fed raises short-term rates, SOFR tends to rise, increasing ARM rates during adjustment periods.

ARMs offer lower initial rates that adjust based on benchmark rates plus a lender margin, influenced by broader economic conditions and personal creditworthiness. They can be beneficial if you plan to sell or refinance before adjustments begin or take advantage of falling interest rates since their adjustments track benchmark rates.

However, after the initial period, rates may increase depending on market conditions and caps. This can lead to higher monthly payments, making budgeting more challenging and introducing uncertainty. Fixed-rate mortgages, on the other hand, provide stability and predictable monthly payments regardless of market changes.

In summary, choosing between an ARM and a fixed-rate mortgage depends largely on your financial situation, credit profile, outlook on interest rates, and how long you plan to hold the mortgage. Shopping around and comparing rates from multiple lenders can help find the best deal for ARMs, and negotiating with lenders can lead to a lower rate.

As of the latest data, the 30-Year Fixed-Rate Mortgage rate stands at 6.73%, down 18 basis points from the previous week. The 7-year ARM rate for conforming loans is 7.29%, down 0.15% from the previous week, while the 5-year ARM rate is 7.49%, up 0.29% from the previous week.

Predicting future mortgage rates is challenging, but economic forecasts from reputable sources, Fed policy, and market trends in the bond market can provide insights. Understanding rate caps can help manage potential risks with ARMs, and a larger down payment can result in a lower interest rate for ARMs.

For investors seeking to capitalise on current mortgage trends, Norada offers a selection of ready-to-rent properties in top markets to help build long-term wealth.

[1] https://www.consumerfinance.gov/about-us/newsroom/consumer-finance-bureau-releases-new-know-before-you-owe-mortgage-disclosure-rule-for-adjustable-rate-mortgages/ [2] https://www.fdic.gov/resources/consumers/consumer-news/spring-2017/arm-mortgages-what-you-need-to-know [3] https://www.investopedia.com/terms/a/adjustable-rate-mortgage.asp [4] https://www.investopedia.com/terms/s/sofr.asp

1. When considering Adjustable-Rate Mortgages (ARMs), understanding factors such as benchmark rates like the Secured Overnight Financing Rate (SOFR) is crucial, as these rates reflect banks' cost of borrowing cash and can influence the interest rate on an ARM during adjustment periods.
2. A significant aspect of ARM rates is the lender's addition of a fixed margin to the benchmark rate, which may vary depending on the lender's policies, specific loan terms, and the borrower's creditworthiness.
3. ARMs also include caps that limit how much the interest rate can increase during each adjustment period and over the life of the loan, providing some protection against extreme rate spikes but not preventing moderate increases.
4. Individual credit score, down payment size, debt-to-income ratio, and the loan term influence the margin offered and, therefore, the overall ARM rate. Better credit and financial profiles can secure lower margins and rates.

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