Today’s 5-Year Adjustable Rate Mortgage Goes Down by 14 Basis Points – August 2, 2025

Are you keeping an eye on mortgage rates? If you're thinking about buying a home or refinancing, you should be! According to Zillow, the national average 5-year Adjustable Rate Mortgage (ARM) rate has decreased to 7.16%, a 14-basis-point drop from the previous rate of 7.30%. While this might seem small, every little bit helps when you're dealing with a mortgage. Let's dive deeper into what this means for you and the broader housing market.

Today's 5-Year Adjustable Rate Mortgage Goes Down 14 Basis Points From 7.30% to 7.16% – Aug 2, 2025

A Closer Look at Today's Mortgage Rate Changes

It's not just the 5-year ARM that's been moving. Here's a snapshot of how different mortgage types are performing as of today:

PROGRAM	RATE	1W CHANGE	APR	1W CHANGE
30-Year Fixed Rate	6.68%	down 0.17%	7.13%	down 0.19%
20-Year Fixed Rate	6.34%	down 0.04%	6.84%	up 0.06%
15-Year Fixed Rate	5.74%	down 0.16%	6.03%	down 0.18%
10-Year Fixed Rate	5.94%	up 0.19%	6.34%	up 0.22%
7-year ARM	6.88%	up 0.11%	7.66%	up 0.01%
5-year ARM	7.16%	down 0.57%	7.72%	down 0.30%
3-year ARM	—	0.00%	—	0.00%

Source: Zillow

As you can see, most fixed-rate mortgages have also seen a slight decrease this week, which is generally good news for potential homebuyers.

Why the Focus on ARMs? Understanding the Basics

An Adjustable Rate Mortgage (ARM) is a type of mortgage where the interest rate is not fixed for the entire loan term. Instead, it's fixed for an initial period (in this case, five years) and then adjusts periodically based on a benchmark interest rate.

• The Initial Fixed Period: This is when you get a predictable interest rate and monthly payment.
• The Adjustment Period: After the initial period, your interest rate can go up or down depending on market conditions.

The 5-year ARM is a popular choice for folks who don't plan on staying in their home for more than five years, or those who believe interest rates will go down in the future. They are betting that they will sell or refinance the home before the rate adjusts upward significantly.

The Fed's Role: The Puppet Master Behind the Curtain

Mortgage rates don't just appear out of thin air. They are heavily influenced by the Federal Reserve (the Fed), which is the central bank of the United States. The Fed uses monetary policy, like adjusting the federal funds rate (the rate at which banks lend money to each other overnight), to try to keep the economy stable.

Here's a quick recap of the Fed's recent actions:

• 2021-2023: Rate Hikes to Fight Inflation: Remember those pandemic-era low interest rates? Well, to combat rising inflation, the Fed aggressively raised the federal funds rate by 5.25 percentage points, pushing mortgage rates up to 20-year highs.
• Late 2024: A Glimmer of Hope (Rate Cuts): After a period of holding steady, the Fed cut rates three times at the end of 2024, reducing the federal funds rate by 1 percentage point.
• 2025: A Year of Waiting: So far in 2025, the Fed has held rates steady, creating some uncertainty in the market.

As of July 30, 2025, there was even disagreement within the Fed, with some members pushing for immediate rate cuts due to a slowing economy.

Digging Deeper: The Economic Crosscurrents

The Fed's decisions are based on a complex mix of economic data. Here are some key factors influencing their choices:

• Inflation: Core PCE (Personal Consumption Expenditures), a measure of inflation, is still above the Fed's target. This is making them hesitant to cut rates too quickly.
• Economic Growth: GDP (Gross Domestic Product) growth has slowed down, and unemployment is creeping up. This is putting pressure on the Fed to lower rates to stimulate the economy.
• Geopolitical Tensions: Increased tariffs and geopolitical uncertainty further complicate the economic outlook.

What Does This Mean for You? Practical Implications

So, how does all of this translate into your everyday life?

• Current Homebuyers: If you're in the market to buy a home, be aware that rates are still relatively high. However, the Fed's signals suggest that some relief may be coming later in 2025 or early 2026.
• Refinancers: If you have a mortgage rate above 7%, keep a close eye on the Fed's upcoming meetings in September and December. These meetings could provide clues about potential rate cuts.
• Investors: The bond market still remains volatile in lieu of the decision. Also, the 10 year treasury yield will be sensitive to the Fed rhetoric.

Basically, for the people buying now, it could be good especially the ARMs, and for the refinancers, they need to monitor the trend.

The Future: What to Expect

The Fed is expected to gradually ease monetary policy over the next few years. Their projections suggest that rates could settle near 2.25%-2.5% by 2027. But in this ever changing world, it is only projections and is subject to change due to unforeseen circumstances.

Here are some key dates to watch:

• September 16-17 Meeting: The next critical juncture, with updated economic projections.
• December Meeting: Likely the Fed's last realistic 2025 opportunity if September passes without action.

Why Choose a 5-Year ARM? Pros and Cons

Here's a quick breakdown of the advantages and disadvantages of a 5-year ARM:

Pros:

• Lower Initial Interest Rate: You typically get a lower interest rate compared to a fixed-rate mortgage, which can save you money in the short term.
• Flexibility: If you don't plan on staying in your home for more than five years, an ARM can be a good option.
• Potential for Rate Decreases: If interest rates go down during the adjustment period, your mortgage payment could decrease.

Cons:

• Rate Adjustments: After the initial fixed period, your interest rate can increase, leading to higher monthly payments.
• Uncertainty: It's hard to predict where interest rates will be in the future, so you're taking a risk when you choose an ARM.
• Complexity: ARMs can be more complicated than fixed-rate mortgages, so it's important to understand how they work.

My Take: A Cautious Optimism

While the decrease in the 5-year ARM rate is good news, it's essential to approach the situation with informed caution. The economy is still facing numerous challenges, and the Fed's actions are not always predictable.

If you're considering an ARM, do your research and understand the risks involved. Talk to a mortgage professional to get personalized advice based on your financial situation and goals.

Remember, buying a home is a big decision. Take your time, weigh your options, and make sure you're comfortable with your choice.