5-Year Adjustable Rate Mortgage Plunges Today by 23 Basis Points – June 19, 2025

Trying to figure out the best way to finance a home can feel like navigating a maze, right? Well, here’s a little clarity for you on June 19, 2025: The national average for a 5-Year Adjustable Rate Mortgage (ARM) has dropped 23 basis points to 6.80%. This dip could be a welcome sign for some homebuyers, but let's dig deeper into what this means and whether an ARM is the right choice for you.

5-Year Adjustable Rate Mortgage Plunges Today by 23 Basis Points – June 19, 2025

Understanding the Current Mortgage Rate Environment

Before we zero in on the 5-year ARM, let's take a quick look at the broader mortgage rate picture. As of today, June 19, 2025, here's a snapshot:

• 30-Year Fixed Rate: 6.93% (up 2 basis points from yesterday, equal to last week's average)
• 15-Year Fixed Rate: 5.99% (up 3 basis points from yesterday)
• 5-Year ARM: 6.80% (down 23 basis points from yesterday)

This data, provided by Zillow, gives us a good starting point to analyze the trends. The 30-year fixed rate, which is the most popular choice for homebuyers, saw a minor increase. The 15-year fixed rate also inched up. However, the notable movement is the decrease in the 5-year ARM rate.

Why the Drop in the 5-Year ARM Rate Matters

A 23-basis-point drop in the 5-year ARM rate is significant. But what exactly does it mean for potential homebuyers?

Firstly, it can translate to lower initial monthly payments compared to a 30-year fixed-rate mortgage. This can be attractive to buyers who are on a tight budget or expect their income to increase in the near future.

Secondly, it could signal a shift in the market's expectations for future interest rates. While predicting the future is impossible, movements like these often reflect underlying economic factors and investor sentiment.

Delving into Adjustable-Rate Mortgages (ARMs)

Let's break down exactly what an ARM is and how it works because, honestly, the name itself can sound a little intimidating. An ARM is a type of mortgage where the interest rate is not fixed for the entire loan term. Instead, it starts with a fixed rate period and then adjusts periodically based on a benchmark index.

The 5-year ARM, specifically, has a fixed interest rate for the first 5 years. After those 5 years, the interest rate will adjust annually based on a specific index, like the Secured Overnight Financing Rate (SOFR), plus a margin determined by the lender.

Here's a simplified example:

• Let's say you get a 5-year ARM with an initial rate of 6.80%.
• For the first 5 years, your interest rate stays at 6.80%.
• After 5 years, the rate adjusts. The adjustment is based on the index (let's say SOFR currently at 5%) plus a margin (let's say 2.5%).
• Your new interest rate would be 5% (SOFR) + 2.5% (margin) = 7.5%.

It is worthy to note that ARMs usually come with caps on how much the interest rate can increase at each adjustment and over the life of the loan. These caps are crucial to understand because they limit your potential exposure to rising rates.

Who Should Consider a 5-Year ARM?

A 5-year ARM isn't for everyone. It's important to carefully consider your financial situation and future plans before opting for one. Here are some scenarios where a 5-year ARM might be a good fit:

• You plan to move or refinance within 5 years: If you don't anticipate staying in the home for more than 5 years, the adjustable rate aspect might not affect you.
• You expect your income to increase significantly: If you believe your income will rise in the future, you might be comfortable with the risk of a potential rate increase.
• You’re comfortable with some level of risk: ARMs inherently involve more risk than fixed-rate mortgages. If you're risk-averse, a fixed-rate might be a better choice.
• You want a lower initial interest rate: ARMs typically offer lower initial interest rates than fixed-rate mortgages, which can result in lower monthly payments during the fixed-rate period.

The Risk Factor: Interest Rate Adjustments

The biggest concern with ARMs is the possibility of rising interest rates. If interest rates increase after the fixed-rate period, your monthly payments could go up, potentially straining your budget.

To mitigate this risk, it's essential to:

• Understand the index and margin: Know which index your ARM is tied to and what the margin is. This will help you estimate potential rate adjustments.
• Know the rate caps: Pay close attention to the periodic and lifetime rate caps. These caps limit how much your interest rate can increase.
• Stress test your budget: Evaluate whether you can afford your mortgage payments if the interest rate rises to the maximum cap.

Comparing Different Mortgage Options

Here's a quick comparison of different mortgage types to help you make an informed decision:

Feature	30-Year Fixed Rate	15-Year Fixed Rate	5-Year ARM
Interest Rate	Fixed	Fixed	Initially Fixed, then Adjustable
Loan Term	30 years	15 years	Varies
Monthly Payments	Lower	Higher	Lower initially, potentially higher later
Overall Cost	Higher	Lower	Can be lower or higher depending on rate adjustments
Risk	Lower	Lower	Higher
Suitability	Long-term homebuyers, risk-averse individuals	Those who want to pay off their mortgage quickly, have a stable income	Short-term homebuyers, those who expect their income to increase, comfortable with risk

Beyond the Numbers: Other Factors to Consider

Mortgage rates are important, but they're not the only factors to consider when buying a home. It is important to consider the following:

• Your credit score: A higher credit score typically qualifies you for lower interest rates.
• Your down payment: A larger down payment can reduce your loan amount and potentially lower your interest rate.
• Closing costs: Don't forget to factor in closing costs, which can include appraisal fees, title insurance, and other expenses.
• Your long-term financial goals: Consider how your mortgage fits into your overall financial plan.

My Take

As a homeowner, investor, and someone who's followed the mortgage market for years, I've seen firsthand how these rates can impact people's lives. While the 23-basis-point drop in the 5-year ARM is noteworthy, it's important to approach ARMs with caution.

From what I have seen from the past, I have noticed that people often get lured into ARMs because of the lower initial rates, only to get shocked by the rate adjustments afterward. Always do your homework, understand the risks, and make sure you can comfortably afford the payments, even if rates rise. It's also helpful to consult with a mortgage professional who can provide personalized advice based on your unique situation.

Final Thoughts: The decrease in the 5-year Adjustable Rate Mortgage rate presents an intriguing option for prospective homeowners. However, it is critical, let me repeat that, CRITICAL to balance the potential benefits with the inherent risks. Thorough research, careful planning, and professional guidance are essential to ensure that you make the best decision for your financial future. As always, focus on your personal needs and make a decision based on that.