Adjustable rate mortgages (ARMs) are becoming increasingly attractive, and this time it’s not a replay of 2004–2007, when articulating the credit risk was far different than it is today. The renewed interest is being driven by a simple reality: even with some rate moderation over the past year, buyers are running out of affordability levers as home prices remain elevated relative to incomes. These levers have included less house, more money down, stretch debt-to-income (DTI) and a lower-rate product. This last one favors ARMs.
The shift clearly shows up in the data. In 2025, ARMs accounted for 27% of total funded mortgage volume—the highest share since pre-2007 (Figure 1). But importantly, most current ARM production consists of 5-, 7- and 10-year products that are underwritten at the fully indexed rate. This material reduction in credit risk is in contrast to ARMs before the Great Financial Crisis, when they might have had had two- to three-year initial terms and/or negative-amortization features.
Figure 1: Funded Retail Mortgage Volume by Rate Type – All Products, All Purposes
Source: LendersBenchmark FM Retail Originations
Figure 2: Funded Retail Mortgage Rate Spread Adj Rate vs Fixed – All Products, All Purposes
Source: LendersBenchmark FM Retail Originations
Lenders are responding accordingly. Many are expanding their ARM offerings and actively incentivizing borrowers to take advantage of lower initial rates. They recognize that, yes, the option of refinancing will return over time, but likely with less frequency and ease than in prior rate cycles. That presents them—particularly those with an appetite for portfolio lending—with clear opportunities to revamp ARM offerings and develop innovative ways to meet the needs of borrowers eager for any affordability relief.
