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As the Iran war escalates, mortgage rates are taking a toll.
The housing market got a bit of a boost earlier this year when 30-year fixed-rate mortgages fell below 6% for the first time in years. However, just one month later, this popular item was at 6.38%. In late March, it was the biggest one-week increase since April 2025, when the White House made its first shock-and-awe tariff announcement.
It’s not the highest interest rate in recent years, but with home prices still rising and many Americans struggling to afford high prices on everything from milk to gasoline, borrowers need all the help they can get. This is why adjustable rate mortgages (ARMs) are being reevaluated.
ARMs provide the borrower with a fixed interest rate for an introductory period of, say, five or seven years. After that period, they typically start to fluctuate up and down and can be adjusted, usually by tracking a metric such as SOFR, which is one measure of how much banks pay to borrow.
Scott Bridges, chief consumer direct production officer at PennyMac, one of the nation’s largest lenders, said the standard 30-year fixed-rate mortgage is “reliable.” ARM, on the other hand, could be “strategic,” Bridges told USA TODAY.
“Low interest rates, long grace periods that allow you to make low payments, and the ability to refinance to a fixed rate loan if interest rates go down.”
Using the latest interest rates available for the week of March 23, Realtor.com senior economist Hannah Jones calculated the savings on a 5/1 adjustable rate mortgage of about $185 per month on a median-priced home with a 10% down payment.
And a recent analysis by data provider Kotality found that “ARMs are making a comeback in high-cost markets where affordability gaps are greatest. In California, ARMs accounted for more than 31% of mortgage originations in 2025, with similar spikes in the District of Columbia (28%) and Massachusetts (~24%).”
In these areas, Kotality said ARM is “an important option for people looking to enter the market or upgrade to a larger home.”
According to data from the Mortgage Bankers Association, as of late March, ARMs accounted for just over 8% of home loan applications nationwide.
ARMs may have had a bit of a bad reputation during the subprime crisis, when mortgage lenders were offering all sorts of exotic loan products and borrowers were happy to take them on. And in the years following a bankruptcy, interest rates were generally so low that it didn’t offer much of an advantage over a 30-year fixed-rate mortgage, which felt safer.
As Realtor.com’s Jones explained in an email, “Buyers who remain in their home beyond the fixed rate period face the risk of an upward adjustment in their interest rate, potentially wiping out early savings and adding significant changes to their monthly budget at a time when housing costs are already straining household budgets.”
It is also important to note that ARM terminology can vary widely. For example, some rates may be adjusted both up and down in parallel with other rates, while others may only be adjusted up. On the other hand, some loans have a cap on the amount of interest they can pay.
What is mortgage interest buyback?
Many housing professionals prefer interest rate buydowns over variable rate mortgages. A buydown allows a borrower to prepay a certain amount of money up front at a lower interest rate during the first few years of a loan.
Dave Nichols, a loan officer at NBKC Bank in Kansas City, explains the common 2-for-1 buydown: If a 30-year fixed-rate mortgage costs 6.50%, the borrower would pay 4.50% in the first year, 5.50% in the second year, and then reset to 6.50% over the life of the loan.
Nichols said buydowns have several benefits. Some of them even offer big savings by paying upfront. Buybacks are also a smart way to take advantage of credit from sellers. These concessions often closely match the amount saved during the first two years of the acquisition period.
For a home worth about $400,000, a typical monthly payment could be about $2,000, Nichols said. But for the first year on a 2-to-1 mortgage, it could be as little as $1,600.
Trusted mortgage experts can help
One of the smartest steps for a borrower may be to work with a reputable lender.
As long as conflicts in the Middle East continue, interest rates are likely to rise and remain volatile. But Nichols points out that lenders can also help borrowers understand the nuances involved in future refinance plans.
“Find someone who will take the time to talk to you about your situation,” he said.
