Today’s Mortgage Rates: 5-Year ARM Sees Biggest Drop of 19 Basis Points – Sept 27, 2025

If you're wondering what's happening with mortgage rates today, here's the scoop: on September 27, 2025, the national average 5-year ARM (Adjustable-Rate Mortgage) rate dropped by 19 basis points, settling at 7.01%. This is a significant move, and in this article, I am going to delve into what it means for you, especially if you're considering buying a home or refinancing.

It's like this, imagine you are trying to decide what you should do next and you realize that the world of home finances is never straightforward but it can be rewarding if you pay close attention. I will try to make this easy for you.

Today’s Mortgage Rates: 5-Year ARM Sees Biggest Drop of 19 Basis Points – Sept 27, 2025

Here's a quick overview of what else happened in the mortgage market, according to Zillow's latest data:

• 30-Year Fixed Mortgage: Increased to 6.62%, up 2 basis points.
• 15-Year Fixed Mortgage: Decreased to 5.70%, down 5 basis points.
• 5-Year ARM Refinance: Decreased slightly to 7.41%, down 1 basis point.

ARM vs. Fixed: Is Now the Time to Switch Strategies?

With the 5-year ARM taking a noticeable dip, you might be wondering if it's time to reconsider your mortgage strategy. Let's compare ARMs and fixed-rate mortgages:

• Fixed-Rate Mortgages: These offer stability. The interest rate stays the same for the entire loan term (e.g., 15 years or 30 years). You like knowing what your monthly payment will be.
• Adjustable-Rate Mortgages (ARMs): Usually start with a lower interest rate than fixed-rate mortgages, but the rate can change periodically based on market conditions.

So, who benefits from an ARM?

ARMs can be attractive if:

• You plan to move or refinance within the initial fixed-rate period (in this case, 5 years).
• You believe interest rates will stay low or decrease in the future.
• I think you should consider your tolerance for risk. If you don't like uncertainty, a fixed-rate mortgage might be a better choice.

Why the Drop? Key Factors Behind the 5-Year ARM Rate Decline

The drop in the 5-year ARM rate is interesting. Here are some potential reasons:

• Anticipation of Future Rate Cuts: Lenders might be anticipating further rate cuts by the Federal Reserve, leading them to offer lower rates on ARMs now.
• Market Competition: Lenders are always trying to attract borrowers, and lowering ARM rates could be a way to stand out.
• Investor Demand: Increased demand for mortgage-backed securities tied to ARMs could also push rates down.

Here's a simplified analogy: Imagine a store having a sale on a certain item. They might lower the price to attract more customers, clear out inventory, or beat the competition. It's the same principle in the mortgage world.

The Federal Reserve’s Role in Mortgage Rates: Post-Cut Analysis & Outlook

The Federal Reserve (also known as The Fed) plays a huge role in influencing mortgage rates. Let me give you a lowdown.

The Decision: First Cut of 2025

On September 17, 2025, the Fed made its first move of the year to lower borrowing costs. They cut the benchmark interest rate by a quarter percentage point, bringing the target range down to 4.0% to 4.25%. This happened after they took a break for five meetings in 2025, subsequent to three cuts in late 2024.

Economic Context: Stubborn Inflation vs. Solid Growth

The Fed's decision was made due to mixed economic factors:

• Inflation: The core PCE price index (which the Fed watches closely) rose 2.9% year-over-year in August. This is still above their 2% target, and it's proving tricky to get it down.
• Economic Growth: Real GDP grew at a strong 3.8% annualized rate in the second quarter of 2025. This shows the economy is still pretty strong.

Here's a simplified table of the rates:

Mortgage Type	Rate on Sept 27, 2025	Change from Previous Day
30-Year Fixed	6.62%	Up 2 basis points
15-Year Fixed	5.70%	Down 5 basis points
5-Year ARM	7.01%	Down 19 basis points
5-Year ARM Refinance	7.41%	Down 1 basis point

The data shows that it's tough for the Fed to balance things out. They want to keep inflation in check but also want the economy to keep growing.

The Critical Link: Treasury Yields and Mortgage Rates

The Fed's rate cut affects mortgage rates indirectly through the 10-year U.S. Treasury yield. This yield is a key benchmark for 30-year fixed-rate mortgages.

• As of September 26, 2025, the 10-Year Treasury Yield was at 4.176%.

How It Works

1. Direct Benchmark: Lenders use the 10-year Treasury yield to price 30-year mortgages because homeowners typically hold their loans for about that long
2. Investor Competition: Mortgage-backed securities need to offer competitive returns compared to safe Treasury bonds to attract investors
3. The Spread: Mortgage rates are usually about 1 to 2 percentage points higher than the 10-year yield to account for the added risk. But recently, this spread has widened to over 2 percentage points. This has kept mortgage rates higher even when Treasury yields drop.

What This Means for Mortgage Rates Now

The rate cut has a moderating effect. While the 10-year Treasury yield has decreased, the persistently wide spread means that the decline in mortgage rates is not so massive. Mortgage rates haven't fallen as much as you might expect.

What could happen?

If the spread goes back to normal as market volatility decreases, we could see more significant declines in mortgage rates, possibly even below 6% in 2026.

But be careful! If inflation becomes a problem again (core PCE is at 2.9%), the Fed might have to stop cutting rates, which could push Treasury yields and mortgage rates back up.

Outlook for the Housing Market

What does it all mean for buying, selling, and refinancing?

• For Buyers: Even slightly lower mortgage rates can make homes more affordable. But because of the wide spread, the benefits aren't as big as they could be.
• For Sellers & Inventory: It might encourage homeowners who have been “rate-locked” to sell their homes, which could increase the number of homes on the market. But if new buyer demand is greater than the new listings, home prices could still be pushed higher.
• This is what I think, more people buying can mean prices go up. It is not a great situation for buyers.

Here is a summary table:

Group	Impact
Buyers	Modestly improved affordability, but high competition in limited-supply markets.
Sellers/Inventory	Potential increase in listings from “rate-locked” homeowners, but upward pressure on prices likely if demand outpaces listings.

What’s Next?

The Fed will continue to watch the data closely. Here’s what to keep an eye on:

• Inflation Reports: Watch for the next PCE and CPI readings. They'll show if inflation is really coming down.
• Labor Market Data: If job growth slows down, the Fed might consider another rate cut at their upcoming meetings.
• The Spread: Pay attention to whether the spread between Treasury yields and mortgage rates goes back to normal.

For people who are buying:

• It is more favorable than six months ago but the “spread” is a key factor in the rates being offered.

For people refinancing:

• Homeowners with rates over 6.5% should explore refinancing options because the opportunities have improved.

For market watchers:

• Lower rates will be gradual and it will be a slow journey. The wide spread indicates that lenders are pricing in risk and mortgage rates will remain elevated relative to Treasury yields for the foreseeable future.

Why This Matters for You

• Current Buyers: The market is a bit more favorable than it was six months ago. Make sure to shop around for the best rate, and keep an eye on that “spread.”
• Refinancers: If you have a mortgage rate above 6.5%, now might be a good time to explore refinancing options.
• Market Watchers: Keep an eye on inflation reports, labor market data, and the spread between Treasury yields and mortgage rates. This will give you the inside scoop on where rates are headed.

In my opinion, the recent dip in the 5-year ARM rate is a notable event, but it's important to understand the bigger picture. Factors like the Federal Reserve's policies, inflation, and the spread between Treasury yields and mortgage rates all play a role. Whether you're a buyer, seller, or homeowner looking to refinance, staying informed and understanding these dynamics can help you make the most of your financial decisions.