Today’s 5-Year Adjustable Rate Mortgage Drops Substantially by 31 Basis Points – June 21, 2025

Thinking about buying a home or refinancing your current mortgage? You're probably keeping a close eye on interest rates. As of today, June 21, 2025, the national average 5-year Adjustable Rate Mortgage (ARM) rate is 7.10%. This is a significant drop of 31 basis points from last week. Let's dive deeper into what this means for you and whether a 5-year ARM is the right choice. I will explore current mortgage rate trends, the pros and cons of ARMs, and factors to consider before making a decision.

Today's 5-Year Adjustable Rate Mortgage Drops Substantially by 31 Basis Points – June 21, 2025

Mortgage rates are constantly in flux, influenced by a variety of economic factors. As of June 21, 2025, here's a snapshot of where things stand, according to the data available from Zillow:

• 30-Year Fixed Rate: 6.89% (down from 6.93% last week)
• 15-Year Fixed Rate: 5.93% (down from 6.01% last week)
• 5-Year ARM: 7.10% (down from 7.41% last week)

It's interesting to see the 5-year ARM trending lower than the more popular 30- year fixed rate. While a 0.31% decrease to 7.10% gives some relief, it is still crucial to weigh the pros and cons carefully.

Here's a quick comparison of the rate environment for various loan types:

Program	Rate	1 Week Change	APR	1 Week Change
30-Year Fixed Rate	6.89%	Down 0.04%	7.35%	Down 0.04%
15-Year Fixed Rate	5.93%	Down 0.08%	6.23%	Down 0.08%
5-Year ARM	7.10%	Down 0.24%	7.76%	Down 0.10%

What is a 5-Year ARM and How Does it Work?

A 5-year ARM is a mortgage with an interest rate that's fixed for the first five years. After that, the interest rate adjusts annually based on prevailing market conditions. These mortgages are often appealing because they typically offer lower initial interest rates than fixed-rate mortgages. This can translate to lower monthly payments during the initial fixed-rate period.

Here’s a breakdown:

• Initial Fixed-Rate Period: The first five years, your interest rate remains the same, regardless of what happens in the market.
• Adjustment Period: After five years, your interest rate adjusts – usually once per year. The adjustment is typically tied to an index, like the Secured Overnight Financing Rate(SOFR), plus a margin.
• Rate Caps: ARMs come with rate caps, which limit how much the interest rate can increase:
  • Initial Cap: Limits the first interest rate adjustment.
  • Periodic Cap: Limits how much the interest rate can change in subsequent adjustment periods.
  • Lifetime Cap: Sets the maximum interest rate you'll ever pay over the loan's life. I always emphasize to buyers to understand these caps cold.

Advantages of a 5-Year ARM

• Lower Initial Interest Rate: This is the biggest draw for most people. A lower rate translates to lower monthly payments in the initial years.
• Potential Savings: If interest rates remain stable or decline after the fixed-rate period, you could save money over the life of the loan if the adjustable rate goes below the fixed rate you could have secured.
• Good for Short-Term Homeownership: These are very useful if you anticipate moving or refinancing before the adjustment period begins.

Disadvantages of a 5-Year ARM

• Interest Rate Risk: The biggest drawback. If interest rates rise after the fixed-rate period, your monthly payments will increase, and those increases can be substantial based on market conditions.
• Complexity: ARMs can be more complex to understand than fixed-rate mortgages. You need to understand the index, margin, and rate caps. I highly recommend speaking with a mortgage professional.
• Uncertainty: It's hard to predict where interest rates will be in five years, add budget accordingly. This uncertainty can make it difficult to budget for the future.

Is a 5-Year ARM Right for You? Consider These Factors

Before jumping into a 5-year ARM, ask yourself these questions:

• How long do you plan to stay in the home? If you expect to move within five years, a 5-year ARM might be a great option as you could avoid the adjustment period altogether.
• What's your risk tolerance? Are you comfortable with the risk that your interest rate, and therefore your monthly payment, could increase significantly in the future?
• Can you afford higher payments? If interest rates rise substantially, could you still afford your monthly mortgage payments? I highly recommend stress-testing this possibility.
• What are your long-term financial goals? How does the potential for adjustable rates fit into your overall financial plan?
• Look at the Margin and Index: The fully indexed rate should be carefully considered and understood.

Comparing Government and Jumbo Loan 5-Year ARM Rates

It's also helpful to consider how the 5-year ARM rates compare across different loan types:

• Conforming Loans: As highlighted above, the current rate is 7.10%.
• Jumbo Loans: The 5-year ARM Jumbo sits higher, at 7.90%, reflecting the increased risk associated with larger loan amounts.
• Government Loans The 5-year ARM is not available.

Fixed vs. Adjustable: A Quick Table

Feature	Fixed-Rate Mortgage	Adjustable-Rate Mortgage (ARM)
Interest Rate	Remains the same for the life of the loan.	Changes periodically after the initial fixed-rate period.
Monthly Payments	Predictable and consistent.	Can fluctuate, depending on interest rate changes.
Risk	Lower, since payments are stable.	Higher, due to the potential for rising interest rates.
Complexity	Easier to understand.	More complex, requiring understanding of indexes, margins, & caps.
Best For	Those who value stability and long-term predictability.	Those with shorter time horizons or higher risk tolerance.

The Importance of APR (Annual Percentage Rate)

While the interest rate is important, it's also crucial to pay attention to the APR. The APR includes not only the interest rate but also other fees and charges associated with the loan, such as:

• Origination fees
• Discount points
• Other closing costs

Because the APR includes these additional costs, it provides a more accurate picture of the overall cost of the loan. Always compare APRs, not just interest rates, when shopping for a mortgage.

Summary:

The 5-year ARM can be a strategic financial tool if used wisely. Given the current rate environment as of June 21, 2025, with the average hovering around 7.10%, it might be tempting if you're after a lower initial payment. However, it's imperative to weigh the risks carefully. If you're planning on moving in less than five years, or if you are comfortable with the possibility of fluctuating payments, it could be the right choice. But if you crave stability and predictability, a fixed-rate mortgage might be a better fit. Consulting with multiple lenders and financial advisors is essential to assess your particular circumstances and make the right decision.

Remember, knowledge is power. Understand all aspects of a 5-year ARM before committing. Your home is likely the biggest investment you'll ever make, so proceed with caution, do your homework, and make sure it aligns with your long-term financial goals.