Key Takeaways
- Approximately 10% of borrowers in September took out an adjustable-rate mortgage to purchase a home.
- Adjustable-rate mortgages contributed significantly to the 2008 housing crisis, as many borrowers with poor credit struggled to make payments when their rates increased.
- However, mortgage experts said lending standards have improved since then, reducing the likelihood of widespread impacts on the housing market.
High mortgage rates have been overwhelming homebuyers for the past three years, and some are turning to a mortgage option that helped fuel the 2008 housing crisis.
Adjustable-rate mortgages (ARMs) offer fixed introductory rates that later adjust—typically to a higher rate—to reflect current market conditions. These loans are becoming more popular with homebuyers as mortgage rates remain persistently above 6%.
While those homeowners risk having a bigger monthly mortgage payment in a few years, housing industry officials said better lending standards are minimizing the dangers of these loans.
“In the current timeline, these buyers still are at minimal to low risk,” said Phil Crescenzo Jr., vice president of the Southeast Division at Nation One Mortgage Corporation, in an email interview.
Why This Matters for the Housing Market
Rising ARM usage underscores how sustained affordability pressures are reshaping household behavior within the broader U.S. economy. As borrowers gravitate toward loans that reduce payments in the near term, even at the risk of higher costs later, it reflects the strain that elevated interest rates, tight housing supply, and slow income growth continue to place on family budgets.
Data from the Mortgage Bankers Association show that use of ARMs has increased in the past three years. About 10% of borrowers in September opted for the loan, compared to 6% of buyers who used ARMs after the 2008 housing crash. ARMs are also increasingly being used in new home purchases. In October, they accounted for a quarter of home purchases, up from 16% in the same month of the prior year.
“In this environment where borrowers are struggling with lack of affordability, moving to an ARM can result in real savings,” wrote MBA Deputy Chief Economist Joel Kan.
Borrowers Turn to ARM Loans as Mortgages Rise
When mortgage rates were at their recent lows in 2021—falling below 3% at times—usage of ARMs dropped off, too, MBA data showed. However, after mortgage rates rose by more than three percentage points in 2022, at times surging over 7%, borrower demand for adjustable-rate loans responded in kind.
ARMs can offer home buyers significant savings. According to MBA data, a five-year ARM loan in October offered borrowers an initial rate of 5.58%, compared to the 6.37% rate for traditional mortgage loans over the same period. For a $400,000 loan, the savings in monthly payments could be approximately $200 a month.
One reason more borrowers are relying on ARMs is that the adjustable-rate loan has become a better value in 2025 as short-term interest rates have declined, providing a more favorable introductory rate, Kan wrote.
“It is not surprising that the ARM share has increased, and we expect it will increase further in 2026,” Kan wrote.
ARMs Offer Value While Lenders Have Reduced Risks
ARMs typically offer a lower introductory rate that increases after a specified period. For example, the commonly used 5/1 ARM offers a five-year introductory rate, and is then adjusted each year after that. The terms often include a cap on the maximum rate.
For ARM borrowers, it’s often a matter of timing, as they may be stuck with higher rates once the introductory period ends.
“If you are a homeowner with this loan, you would watch the market to refinance into a fixed rate and avoid the adjustable period altogether,” Crescenzo Jr. said.
If rates are higher when the introductory period expires, he explained, the borrower might be hit with higher payments that they can’t afford.
That was what set off the housing market meltdown that came to fruition in 2008, when borrowers with poor credit ratings saw their adjustable-rate mortgage payments skyrocket. Many couldn’t make the payments, resulting in a wave of defaults that sent the housing market reeling.
But Kan said lenders are now applying stricter credit standards, including evaluating the borrower’s credit rating against the current mortgage rate, not just the introductory rate. Furthermore, ARM usage peaked at 35% in 2005, well above current levels.
“Most ARM loans now have fixed terms of 5, 7, and 10 years and borrowers are underwritten to the fully indexed rate and are significantly less risky than ARM loans originated before 2008,” Kan wrote. “Additionally, borrowers who qualify for ARMs tend to have better credit profiles.”