Today’s Adjustable Rate Mortgages Are Higher Than Fixed Ones – May 14, 2025

Feeling a bit like the world of home loans has been flipped on its head lately? If you've been tracking mortgage rates, you might be scratching your head, and you're definitely not alone. One of the most confusing things right now is that current ARM mortgage rates are higher than fixed rates: what it means is that the old rules for picking a mortgage have taken a temporary vacation.

In plain English, this strange situation generally points to fixed-rate mortgages as the smarter, safer bet for most people looking to buy a home today. It’s a big neon sign flashing “market uncertainty” and hinting that many believe interest rates could fall down the line.

I’ve been watching these trends for a while, and it’s not every day you see this kind of switcheroo. Usually, Adjustable-Rate Mortgages (ARMs) try to tempt you with a lower initial interest rate compared to their fixed-rate cousins. But right now? The tables have turned. Let's break down what’s happening and what it could mean for your big decision.

Today's Adjustable Rate Mortgages Are Higher Than Fixed Ones – May 14, 2025

The Current Rate Puzzle: A Quick Snapshot

As of mid-May 2025, the numbers are telling a surprising story. According to today's data from Zillow, take a look at these national average rates:

• 30-year fixed mortgage: 6.84%
• 15-year fixed mortgage: 6.06%
• 5/1 ARM (Adjustable-Rate Mortgage): 7.34%
• 7/1 ARM: 7.42%

Do you see it? The introductory rates for common ARMs, like the 5/1 ARM (fixed for 5 years, then adjusts annually) and the 7/1 ARM (fixed for 7 years), are higher than the rate for a 30-year fixed mortgage, which stays the same for the entire loan life. This is the opposite of what we usually expect! For example, the 30-year fixed rate recently went up by eight basis points (a basis point is one-hundredth of a percent, so that's 0.08%) to 6.84%, while the 15-year fixed actually dipped a tiny bit. It’s a mixed bag out there.

Even refinance rates are showing this odd pattern:

• 30-year fixed refinance: 6.91%
• 5/1 ARM refinance: 7.57%

So, if you're looking to refinance, you're seeing a similar picture: the ARM option is starting out more expensive.

Why the Flip-Flop? Unpacking the Reasons Behind Higher ARM Rates

When something unusual like this happens in the financial world, there are always reasons bubbling beneath the surface. Here’s my take on why we're seeing ARM rates climb above fixed rates:

1. Lender Expectations: Betting on Falling Rates? This is a big one. Lenders, the banks and institutions that give out mortgages, aren't just looking at today; they're trying to predict tomorrow. If they offer you a low ARM rate now, and most experts think overall interest rates will fall in the coming years, then your ARM rate would adjust downward after its initial fixed period. This means less profit for the lender over the life of the loan.

So, by setting a higher initial rate on ARMs now, they're building in a cushion. It’s a bit like they're saying, “We think rates might go down, so if you want the potential flexibility of an ARM, you'll have to pay a premium upfront.” It’s a way for them to manage their own risk in an uncertain interest rate environment. This is a strong signal that the market, or at least the lenders, are anticipating that rates could be lower in the medium term.

2. Inflation's Wild Ride Inflation has been the headline act for a while now, and it's directly impacting mortgage rates. The Consumer Price Index (CPI) for April, released recently, showed that inflation (how quickly prices are rising) grew year-over-year at its slowest pace since early 2021 – 2.3% to be exact. Normally, slower inflation is good news for mortgage rates; it often leads to them dropping.

However, it's not all sunshine. The report also showed that housing costs were a major driver of month-over-month inflation. So, while overall inflation is cooling, the cost of shelter is still stubbornly high. This mixed message from the inflation report has made mortgage rates “unsteady,” as Zillow put it. This uncertainty makes it harder to price long-term products, and ARMs are particularly sensitive to future rate expectations.

3. The Tariff Shadow Another factor stirring the pot is tariffs – taxes on goods imported from other countries. There's been talk and action on tariffs, for instance, related to President Donald Trump's policies or ongoing trade negotiations like those between the U.S. and China. The expectation is that these tariffs could push inflation higher in the coming months.

Even if we see temporary agreements or reductions in some tariffs, if the overall tariff levels remain high, they can make a lot of products more expensive. This potential for tariff-driven inflation might be making lenders nervous, and that nervousness can translate into higher borrowing costs, especially for products like ARMs where future adjustments are tied to prevailing rates which would be affected by inflation. Markets seem to be waiting to see the full impact of these tariffs on prices.

4. The Federal Reserve's Next Move While not explicitly stated in the daily rate sheets, the Federal Reserve (the “Fed”) plays a huge role. The Fed has been fighting inflation by raising its benchmark interest rate. Slower CPI inflation could give the Fed room to cut rates. However, with sticky housing inflation and the looming impact of tariffs, the Fed might choose to stay cautious. This “will they or won't they” cut rates adds another layer of uncertainty that gets priced into mortgages.

In my experience, when there are this many “ifs” and “maybes” in the economic outlook, lenders tend to be more conservative. Offering an ARM that starts higher than a fixed rate is a form of that conservatism.

What This Unusual Rate Scene Means for You, the Homebuyer or Refinancer

Okay, so ARMs are acting weird. What does this mean for your wallet and your home-buying plans?

Fixed-Rate Mortgages: Your Island of Stability Right now, fixed-rate mortgages are looking like the more straightforward and, for many, the safer choice.

• 30-Year Fixed Mortgage: Currently around 6.84%. The biggest plus here is predictability. Your principal and interest payment will stay the same for 30 years. Yes, the rate might feel a bit high compared to the super-low rates of a few years ago, but knowing exactly what you'll pay each month is golden for budgeting. You spread payments over a long time, so individual payments are lower than shorter loans, but you'll pay more interest overall.
• 15-Year Fixed Mortgage: Currently around 6.06%. This is a fantastic option if you can swing the higher monthly payments. You get a lower interest rate than a 30-year fixed, and you'll own your home free and clear in half the time, saving a boatload in total interest.

My personal advice: In a market where ARMs are starting out more expensive than fixed rates, the peace of mind that comes with a fixed rate is incredibly valuable. You're locking in your biggest housing cost, and that's a powerful thing.

Adjustable-Rate Mortgages (ARMs): Tread Very Carefully! The main draw of an ARM has always been that lower initial “teaser” rate. With that advantage gone (and then some!), the case for an ARM is much weaker today.

• You'd be starting with a higher payment (e.g., 7.34% for a 5/1 ARM) than a 30-year fixed loan.
• You're still taking on the risk that your rate could go up significantly after the initial fixed period (5 or 7 years, typically).
• If the general expectation is that rates might fall, you might think, “Great, my ARM will adjust down!” And it might. But you've already paid a higher rate for several years. You'd need rates to fall a lot, and stay low, for this to be a better deal than just taking a lower fixed rate from the start.

The only scenario where an ARM might make a sliver of sense right now is if you are absolutely certain you will sell the home or refinance before the first rate adjustment, AND you believe rates will indeed fall substantially. This is a high-stakes gamble, and I usually caution against trying to perfectly time the market.

My strong opinion: For the vast majority of homebuyers in the current environment, an ARM that starts higher than a fixed rate is simply not a good deal. Why pay more now for the privilege of uncertainty later?

Thinking About Refinancing? The story is similar. ARM refinance rates are also higher (e.g., 7.57% for a 5/1 ARM refi). If you currently have a very high interest rate (perhaps an older ARM that has already adjusted upwards significantly), refinancing into a fixed-rate loan, even at today's rates, could still save you money or at least give you payment stability. Run the numbers carefully.

Peering into the Future: What Are the Experts Saying?

Predicting mortgage rates is a bit like predicting the weather – even the experts don't always get it right. However, major players like Fannie Mae and the Mortgage Bankers Association (MBA) have teams of economists who make forecasts. Here's what they were thinking for 30-year fixed rates as of their April 2025 updates:

Forecaster	Q2 2025	Q3 2025	Q4 2025	Q1 2026
Fannie Mae	6.5%	6.3%	6.2%	6.1%
MBA	7.0%	6.8%	6.7%	6.6%

Both organizations see rates gradually trending down through 2025 and into early 2026, though MBA is a bit more pessimistic (or realistic, depending on your view) with slightly higher predictions. Freddie Mac also noted in early 2025 that they expect economic growth to slow down, with a cooling labor market potentially easing some inflation pressure.

My two cents on forecasts: These are educated guesses. As the Zillow data rightly points out, due to how volatile interest rates can be, their past accuracy “hasn't been wildly impressive.” Many unforeseen things can shift these outlooks. The fact that current ARM rates are higher than fixed rates is, in itself, a kind of market forecast – it suggests lenders are bracing for or expecting change, likely downward pressure on rates in the future.

Making Your Mortgage Choice in These Unique Times

So, how do you navigate this? Here’s some practical advice:

1. Don't Rely on Averages Alone – Talk to a Lender (or Several!): The rates I’ve shared are national averages. Your specific rate will depend on your credit score, down payment, loan type, and where you live. Get personalized quotes from a few trusted mortgage brokers or lenders.
2. Use a Good Mortgage Calculator: Don't just look at the interest rate. Use a comprehensive mortgage calculator (the Yahoo Finance one is good because it includes taxes, insurance, PMI, and HOA dues) to see the full estimated monthly payment. This gives you a much clearer picture of affordability.
3. Think About Your Timeline: How long do you genuinely plan to live in this home? If it's less than 5-7 years, an ARM used to be a consideration. Now, with ARMs starting higher, even short-timers are likely better off with a fixed rate.
4. Resist Timing the Market: It’s tempting to wait for rates to drop to that “perfect” level. But trying to time the market is a recipe for stress and often missed opportunities. If you've found a home you love, it fits your needs, and you can comfortably afford the payments on a fixed-rate mortgage, it might be the right time for you. You can always explore refinancing later if rates fall significantly.
5. Focus on the Payment: More important than the interest rate itself is whether the monthly payment fits comfortably within your budget, leaving room for other savings and life's unexpected turns.

The Bottom Line

The fact that current ARM mortgage rates are higher than fixed rates is a clear signal from the market. It’s telling us that there's a lot of uncertainty out there, particularly about inflation and future interest rate movements, and lenders are pricing in the possibility of rates declining in the future.

For you, the homebuyer or refinancer, this makes the decision-making process a bit different than usual. Right now, the stability and predictability of a fixed-rate mortgage make it the more attractive option for most people, even if the rates feel a bit higher than we’d all like. ARMs, with their higher starting rates and inherent future uncertainty, are a much harder sell in this specific environment.

Stay informed, do your homework, and chat with a financial advisor or mortgage professional you trust. Buying a home is a big step, and understanding these market quirks can help you make a choice you feel confident about for years to come.