{"id":87156,"date":"2026-09-04T08:00:19","date_gmt":"2026-09-04T15:00:19","guid":{"rendered":"https:\/\/www.redfin.com\/news\/?p=87156"},"modified":"2026-09-04T09:18:18","modified_gmt":"2026-09-04T16:18:18","slug":"arm-versus-fixed-rate-mortgage","status":"publish","type":"post","link":"https:\/\/www.redfin.com\/news\/arm-versus-fixed-rate-mortgage\/","title":{"rendered":"History Shows That Adjustable-Rate Mortgages Pay Off For Homebuyers Most of the Time"},"content":{"rendered":"

Over the past half-century, homebuyers would have saved money by choosing an ARM about 70% of the time, thanks to later opportunities to refinance into a lower 30-year fixed rate.\u00a0<\/i><\/strong><\/p>\n

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. That\u2019s despite borrowers\u2019 widespread <\/span>lack of familiarity<\/span><\/a> with the option.\u00a0<\/span><\/p>\n

About seven in 10 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. <\/span><\/p>\n\n\n\n\n\n\n
Share of ARM borrowers with chance to lower monthly housing payment by refinancing within 5 years<\/b><\/p>\n

Assumes the prevailing mortgage rate has dropped by 0.5 percentage points (for instance, the original mortgage rate was 6.5%, and the prevailing rate is 6%)<\/span><\/i><\/td>\n<\/tr>\n

Number of consecutive quarters in which borrower could have refinanced<\/b><\/td>\nQuarters with opportunity to refinance (since 1971)<\/b><\/td>\nShare of ARM borrowers with opportunity to refinance (since 1971)<\/b><\/td>\n<\/tr>\n
2<\/span><\/td>\n144 out of 217<\/span><\/td>\n66.4%<\/b><\/td>\n<\/tr>\n
1<\/span><\/td>\n156 out of 218<\/span><\/td>\n71.6%<\/b><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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 <\/span>one full <\/i><\/b>percentage point <\/span><\/i>lower than their original rate.\u00a0<\/span><\/p>\n\n\n\n\n\n\n
Share of ARM borrowers with chance to lower monthly housing payment by refinancing within 5 years<\/b><\/p>\n

Assumes the prevailing mortgage rate has dropped by 1 percentage point (for instance, the original mortgage rate was 7%, and the prevailing rate is 6%)<\/span><\/i><\/td>\n<\/tr>\n

Number of consecutive quarters in which borrower could have refinanced<\/b><\/td>\nQuarters with opportunity to refinance (since 1971)<\/b><\/td>\nShare of ARM borrowers with opportunity to refinance (since 1971)<\/b><\/td>\n<\/tr>\n
2<\/span><\/td>\n101 out of 217<\/span><\/td>\n46.5%<\/b><\/td>\n<\/tr>\n
1<\/span><\/td>\n115 out of 218<\/span><\/td>\n52.8%<\/b><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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\u2019s 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. See the end of this report for more on methodology.\u00a0<\/span><\/p>\n

History Shows That ARMs Save Homebuyers Money Now\u2013And Usually Later, Too<\/b><\/h3>\n

 <\/p>\n

\u201cHistory is on the homebuyer\u2019s side: In the past half century, a majority of those\u00a0 who chose ARMs had a chance to lower their mortgage rate by at least half a point\u2013which means their rate never increased,\u201d said <\/span>Chen Zhao<\/span><\/a>, Redfin\u2019s head of economics research. \u201cFor 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.\u201d\u00a0<\/span><\/p>\n

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\u2013either higher or lower\u2013when 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.\u00a0\u00a0<\/span><\/p>\n

Here\u2019s an example of a homebuyer who chooses an adjustable-rate mortgage:<\/b><\/p>\n