As homebuyers look for ways to manage affordability, adjustable-rate mortgages are making a comeback. According to January 2026 data from the Mortgage Bankers Association, applications for ARMs were up 113.1% from the previous year. These loans can offer lower initial interest rates than comparable fixed-rate mortgages; however, borrowers should weigh the risks before getting an ARM.
Why More Buyers Are Considering ARMs Now
As mortgage rates remain high, the payments on a 30-year fixed-rate loan aren’t affordable for some homebuyers. ARMs have become more attractive, offering lower introductory rates and payments. In a market where home prices remain high, even a half-percentage-point difference can lower payments by hundreds of dollars per month.
ARMs typically start about half a percentage point lower than traditional 30-year mortgage rates, which could be what buyers need to make a home affordable. Indeed, a March 2026 analysis from Redfin found that the typical homebuyer would save $150 a month by taking out an ARM instead of a 30-year fixed-rate mortgage.
“The lower initial rate allows borrowers to enjoy the benefits of homeownership with a lower initial monthly mortgage payment,” says Erik Schmitt, consumer direct executive at Chase Home Lending.
A lower payment can increase buying power, as borrowers may qualify for a larger loan amount with an ARM than with a fixed-rate mortgage. That can offer flexibility in competitive housing markets.
“Desperation is the last resort,” says Cody Schuiteboer, president and CEO of Best Interest Financial. “ARMs allow buyers priced out of the market to purchase now and deal with adjustments later. That is a real trade — certainty today for uncertainty tomorrow.”
Some homebuyers expect lower interest rates in the coming years and could be eyeing a refinance when their ARM resets in three to seven years instead of waiting to buy. Others are focused on short-term savings, especially if they don’t expect to stay in the home long enough to see the rate change.
How ARMs Compare to Fixed-Rate Mortgages
The core trade-off between ARMs and fixed-rate mortgages is stability. ARMs give you a lower monthly payment up front, and fixed-rate loans offer certainty for the life of the loan.
A fixed-rate loan can make budgeting easier and protect you from rising interest rates. Your interest rate and monthly principal and interest payment stay the same for the life of a fixed-rate loan.
With an ARM, you have a fixed rate for the initial period, typically three to seven years. After that, the rate adjusts periodically and can rise or fall along with market conditions. Your monthly payments adjust accordingly, which can make it tough to predict what your payment will be.
The savings can be significant in an ARM’s initial fixed-rate period. Borrowers may save hundreds each month with a lower rate during that period, depending on the rate gap and loan size. But an ARM’s long-term cost depends on what happens after the fixed period is over.
“Right now, ARMs do tend to provide some initial savings, but the long-term cost is really dependent on how long the borrower keeps the loan,” says Ben Mizes, real estate agent and president of Clever Real Estate. “This is also dependent on how rates move after the fixed period ends.”
An ARM can be the cheaper option if you sell or refinance before the first rate adjustment. However, if you keep the loan and your interest rate increases, your total cost could be higher than that of a fixed-rate mortgage.
[Read: Best Mortgage Refinance Lenders.]
The Risks of ARMs
Lower initial rates and payments are attractive features of ARMs, but they can create payment shock for borrowers who don’t realize how much the payment can increase. Even with caps limiting rate increases, a loan that starts with a manageable payment could become unaffordable as rates rise.
“Payment shock is the biggest concern,” says Mizes. “Borrowers focus on the initial teaser period, but do not consider how much the payment can go up after. They need to know the loan’s caps, what the adjustment schedule is, and what index and margin will determine the future rates. An ARM is only a good financial product if the borrower can envision how bad it could be.”
Buyers choosing ARMs with the expectation that rates will fall face uncertainty. If rates remain the same or increase, or if your income or credit changes, refinancing may not be easy or beneficial.
“There can be closing costs associated with refinancing, so customers should weigh the pros and cons with a mortgage professional,” says Schmitt.
Before choosing an ARM, run the numbers on the worst case, not just the best one. Know your caps, adjustment schedule and whether you could budget for the maximum possible payment.
[See: Best Low- and No-Down-Payment Mortgages]
When an ARM Makes Sense for Today’s Buyers
ARMs can be useful, especially in a higher-rate environment or for buyers who don’t expect to stay in a home long term. If you move out within a few years, you may benefit from an ARM’s lower introductory rate without ever experiencing a rate adjustment.
It can also make sense if you have a clear refinancing strategy. If your income is stable and you’re willing to accept the uncertainty of future rates in exchange for lower payments, you could save money in the initial fixed-rate period of an ARM.
Borrowers with high income or financial flexibility may be better positioned to handle potential payment increases, and an ARM can offer short-term savings without creating long-term financial strain.
“The most advantageous mortgage is the one that you can sustain regardless of changing interest rates or varying life situations,” says Schuiteboer. “For the majority of homebuyers, that is fixed-rate.”
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Why Some Homebuyers Are Turning to Adjustable-Rate Mortgages Again originally appeared on usnews.com
