ARM Mortgages Often Benefit Homebuyers

Seattle, WA, September 8, 2026–Over the last 50-plus years, it has made financial sense for homebuyers to take out an adjustable-rate mortgage (ARM) rather than a 30-year fixed rate mortgage more often than not, reports Redfin. That’s despite borrowers’ widespread lack of familiarity with the option. 

About seven in ten U.S. homebuyers (71.6%) who take out an ARM have a chance to refinance into a 30-year fixed rate at least 0.5 percentage points lower than their original rate within five years. That means the borrower would have refinanced into a lower mortgage rate for the duration of the loan before they even reached the adjustable-rate period.

More than half of borrowers (52.8%) who choose an ARM have a chance to lower their monthly payment even more by refinancing into a rate at least one full percentage point lower than their original rate.

This is according to a Redfin analysis of Freddie Mac mortgage data going back through 1970; we consider it an opportunity to refinance into a lower rate when a borrower’s current rate is at least 50 basis points above the prevailing 30-year fixed mortgage rate; for instance, if they have a 6.5% rate and the prevailing rate is 6%. We also included a scenario in which borrowers have an opportunity to save even more money, by looking at what would happen if their current rate was at least 100 basis points above the prevailing mortgage rate, i.e. they have a 7% rate and the prevailing rate is 6%; this group is a subset of the former group. The opportunity must last at least one full quarter for the borrower to be counted as someone who has a chance to refinance. 

History Shows That ARMs Save Homebuyers Money Now–And Usually Later, Too

“History is on the homebuyer’s side: In the past half century, a majority of those who chose ARMs had a chance to lower their mortgage rate by at least half a point–which means their rate never increased,” said Chen Zhao, Redfin’s head of economics research. “For homebuyers who are comfortable with some uncertainty up front, ARMs are a smart way to save money now with good odds of securing an even lower fixed rate in the future.” 

The main reason to opt for an ARM over a fixed-rate mortgage is that they usually come with lower interest rates for the introductory portion of the repayment period, typically the first five to seven years of the loan. Rates are lower because borrowers agree to live with the uncertainty that their mortgage rate will reset–either higher or lower–when the fixed period ends. This analysis shows the tradeoff is worth it: Much more often than not, borrowers can refinance into a lower 30-year fixed rate within the first five years, side-stepping the adjustment entirely. 

Here’s an example of a homebuyer who chooses an adjustable-rate mortgage:

In 2026, a buyer purchases a home for $625,000, roughly last spring’s median sale price in Denver, Sacramento, CA or Newark, NJ. They put 20% down, and take out a $500,000 mortgage. 

• If they choose a 30-year fixed rate mortgage at 6.5%, their payment would be about $3,160 per month. 
• Instead, they opt for a 5/1 ARM with an introductory rate of 5.75%. During the first five years of the loan, their monthly payment is $2,918, roughly $240 less than the fixed-rate payment. 
• Over those five years, they save about $14,500 compared to a borrower who takes out a 30-year fixed rate mortgage. 

In 2031, the ARM’s five-year introductory period ends. Imagine that by then, prevailing mortgage rates have fallen to 5.5%. 

• Rather than allowing the ARM to adjust, the homeowner refinances into a new fixed-rate mortgage at 5.5%.
• Their new monthly payment is $2,633, lower than what they paid during the ARM’s introductory period. This assumes the borrower will pay off the mortgage within 30 years of the refinance date. 
• For the sake of comparison, assume that a borrower who originally took on a 30-year fixed mortgage rate also refinanced to 5.5% after five years. That borrower’s new monthly payment with a 5.5% rate is $2,658. Their monthly payment is slightly higher because the ARM borrower had a lower interest rate for 5 years, which means more of each payment went toward the principal. After refinancing, the ARM borrower pays about $9,000 less than the fixed-rate borrower over the remainder of the loan period. 
• Under this scenario, the ARM borrower would make about $23,000 less in total mortgage payments than the borrower who originally chose the 30-year fixed rate mortgage. 

This analysis shows that in many cases, homebuyers who choose an ARM will have the chance to refinance into a lower rate and save money within five years. But that’s not always true. Going back to 1971, there have been a few stretches in which ARM borrowers didn’t get a chance to refinance into a lower rate within that period; in those cases, their rate resets to the prevailing one after the fixed period ends. Still, before the pandemic, most of those borrowers had an opportunity to refinance into a lower rate later in the life of their loan, and may have still come out ahead financially by opting for an ARM.