Mortgage Rates Today – July 5, 2025: 5-Year ARM Drops Massively by 50 Basis Points

If you've been eyeing a home purchase or considering refinancing, today's news could be a game-changer. According to Zillow, on July 5, 2025, the national average 5-year Adjustable Rate Mortgage (ARM) has taken a significant dive, dropping a substantial 50 basis points to 7.12%. This dramatic shift presents a potential opportunity for borrowers, and here’s a deep dive into what it means, why it matters, and how you can leverage this information.

Mortgage Rates Today – July 5, 2025: 5-Year ARM Drops Massively by 50 Basis Points

Why This Matters: A Closer Look at the Mortgage Rate Dip

Okay, so a 50 basis point drop sounds good, but what does it really mean? The short answer is savings. A basis point is one-hundredth of one percent. A drop like this, while seemingly small, can translate to potentially thousands of dollars saved over the life of a loan, depending on the loan amount.

Here's a breakdown of current rates against week-over-week changes.

Conforming Loans

PROGRAM	RATE	1W CHANGE	APR	1W CHANGE
30-Year Fixed Rate	6.79 %	0.00 %	7.25 %	up0.01 %
20-Year Fixed Rate	6.54 %	up0.28 %	6.92 %	up0.29 %
15-Year Fixed Rate	5.86 %	up0.05 %	6.15 %	up0.05 %
10-Year Fixed Rate	5.58 %	down0.12 %	5.77 %	down0.23 %
7-year ARM	7.63 %	up0.48 %	7.84 %	up0.02 %
5-year ARM	7.13 %	down0.34 %	7.72 %	down0.21 %
3-year ARM	—	0.00 %	—	0.00 %

Government Loans

PROGRAM	RATE	1W CHANGE	APR	1W CHANGE
30-Year Fixed Rate FHA	6.60 %	down0.64 %	7.63 %	down0.65 %
30-Year Fixed Rate VA	6.35 %	up0.08 %	6.57 %	up0.09 %
15-Year Fixed Rate FHA	5.45 %	down0.82 %	6.41 %	down0.83 %
15-Year Fixed Rate VA	5.83 %	up0.05 %	6.19 %	up0.08 %

Jumbo Loans

PROGRAM	RATE	1W CHANGE	APR	1W CHANGE
30-Year Fixed Rate Jumbo	7.29 %	up0.15 %	7.76 %	up0.20 %
15-Year Fixed Rate Jumbo	6.32 %	down0.22 %	6.63 %	down0.17 %
7-year ARM Jumbo	7.42 %	0.00 %	8.00 %	0.00 %
5-year ARM Jumbo	7.66 %	up0.19 %	8.11 %	up0.17 %
3-year ARM Jumbo	—	0.00 %	—	0.00 %

Keep in mind that these are just averages! The rate you actually get will depend heavily on several things, including:

• Your credit score: Lenders reward good credit with lower rates.
• Down payment: Putting more money down typically unlocks better rates.
• Loan type: Different loan types (conventional, FHA, VA) have different rate structures.
• The overall economic climate: Broader economic conditions influence mortgage rates.

Understanding the 5-Year ARM: How It Works

An Adjustable Rate Mortgage (ARM) isn't like your standard fixed-rate mortgage. Here's the basic concept:

• Initial Fixed Period: With a 5-year ARM, you get a fixed interest rate for the first five years of the loan. This is where you benefit from the lower rate we see today. Your payments will be stable and predictable during this period. This is critical to your budget.
• Adjustment Period: After those five years, the interest rate “adjusts” (hence the name) based on a benchmark interest rate called an index, plus a margin that the lender adds on top. The Index is generally tied to securities like one-year constant maturity Treasury (CMT) securities, the Cost of Funds Index (COFI) or the Secured Overnight Funding Rate (SOFR). The margin is a fixed percentage the lender adds to the index to determine your adjustable interest rate.

Why Would You Choose a 5-Year ARM?

The biggest draw of a 5-year ARM is often the lower initial interest rate compared to fixed-rate mortgages. This can lead to lower monthly payments in the first few years. But who is this type of mortgage really for? It might be a good option if:

• You plan to move or refinance within five years. If you don't plan to stay in the home long-term, you may benefit from the lower initial rate without ever having to worry about the rate adjusting.
• You expect your income to increase significantly. If you anticipate a substantial increase in income, you might be comfortable taking on the risk of a potentially higher rate after the initial period.
• You believe interest rates will fall. If you think rates will decrease in the future, you might be willing to gamble that your rate will adjust downward. While these situations are a good fit, the latter scenario of anticipating interest rates to fall is risky and requires an indepth calculation.

The Risks to Consider: ARM Yourself with Knowledge

While a 5-year ARM can be attractive, it's important to be aware of the potential downsides:

• Interest Rate Risk: The biggest risk is that your interest rate could increase after the fixed period. Nobody has a crystal ball, the risk of the benchmark increasing is very real, and your monthly payments could go up significantly. This leads to many homeowners losing thier homes to foreclosure.
• Complexity: ARMs can be more complex than fixed-rate mortgages, with terms like “index,” “margin,” and “caps.” Make sure you fully understand how the rate adjustment works before signing on the dotted line.
• Refinancing Costs: If rates rise and you want to switch to a fixed-rate mortgage, you'll have to pay refinancing costs, which can eat into any initial savings you got from the ARM.

Insights and My Take

In my opinion, a 5-year ARM can be a powerful financial tool in the right circumstances. The key is to carefully assess your risk tolerance, your financial situation, and your long-term plans. Don't just jump on the bandwagon because the rate is lower today.

Also, don't treat the initial savings as “free money.” Instead, use that extra cash flow wisely, whether it's paying down other debts, investing for the future, or building up a larger emergency fund. That way, you'll be better prepared if your rate does adjust upward.

Finally, shop around! Don't settle for the first offer you get. Talk to several lenders, compare rates and terms, and don't be afraid to negotiate.

Beyond the 5-Year ARM: The Broader Mortgage Market

While the 5-year ARM grabbed the headlines today, it's important to put it in perspective. Here's a quick look at what's happening with other mortgage rates:

• 30-Year Fixed Rate: Remains relatively stable at 6.79%, unchanged from the previous week. This is still the most popular choice for homebuyers who value stability and predictability.
• 15-Year Fixed Rate: Increased slightly to 5.86%. You'll pay less interest. The caveat is that your monthly payment is higher than the 30 Year Fixed Rate payment.
• Other ARMs: 7-year ARM interest rates increased while the 5-year ARM decreased, presenting a unique situation worthy of further exploration from interested buyers.

The Economic Factors Driving Mortgage Rates

Mortgage rates are heavily influenced by a variety of economic factors, including:

• Inflation: When inflation is high, interest rates, including mortgage rates, tend to rise.
• The Federal Reserve (The Fed): The Fed's monetary policy decisions have a significant impact on interest rates across the board.
• Economic Growth: A strong economy can lead to higher interest rates, while a weak economy can lead to lower rates.
• The Bond Market: Mortgage rates are often tied to the yield on the 10-year Treasury bond.

Take Action: What to Do Next

If you're considering a mortgage, whether it's a 5-year ARM or something else, here's what I recommend:

1. Check Your Credit Score: Get a copy of your credit report and dispute any errors.
2. Calculate Affordability: Use an online mortgage calculator to estimate how much you can afford.
3. Get Pre-Approved: Getting pre-approved for a mortgage will give you a better idea of what you can borrow and will make you a more attractive buyer in the eyes of sellers.
4. Shop Around: Compare rates and terms from multiple lenders.
5. Talk to a Professional: Consult with a mortgage broker or financial advisor.

Final Thoughts

The 50-basis-point drop in the 5-year ARM rate presents an interesting opportunity for some homebuyers and homeowners. However, it's not a one-size-fits-all solution. Do your homework, understand the risks, and make an informed decision based on your unique circumstances. And remember, the goal is to find a mortgage that fits your budget and your long-term financial goals, not just to chase the lowest rate.