As the war in Iran escalates, mortgage rates are at a disadvantage.
The housing market got a slight boost earlier this year when the 30-year fixed rate mortgage fell below 6% for the first time in years. But barely a month later, the popular product dropped to 6.38%. Late March saw the largest one-week increase since April 2025, when the White House made its first surprise tariff announcement.
These aren’t the highest rates in recent years, but with home prices still high and many Americans struggling to afford higher prices on everything from milk to gas, borrowers need all the help they can get. That’s why the adjustable-rate mortgage (ARM) is getting another look.
ARMs offer borrowers a set rate for an initial term, such as five or seven years. After that period, they become adjustable – usually floating up or down, usually by tracking an index such as SOFR, which is a measure of how much banks pay to borrow.
A standard 30-year fixed-rate mortgage can be “credible,” said Scott Bridges, chief consumer direct production officer at PennyMac, one of the nation’s largest lenders. On the other hand, ARMs may be “strategic,” Bridges told USA TODAY.
“They give you a longer window for lower rates, lower payments and the ability to refinance the fixed-rate loan if rates fall.”
Using the latest rates available the week of March 23, Hannah Jones, a senior economist at Realtor.com, calculated the savings from using a 5/1 adjustable-rate mortgage at about $185 per month for an average-priced home with a 10% down payment.
And a recent analysis from Quotality, a data provider, states that ARMs “are enjoying a renaissance in high-cost markets, where the affordability gap is largest. In California, ARMs account for more than 31% of mortgage originations in 2025, and similar growth has occurred in the District of Columbia (28%) and Massachusetts (~24%).”
In those areas, Cotality said, ARMs are “an important option for those looking to enter the market or upgrade to a larger home.”
Nationwide, ARMs accounted for just over 8% of all mortgage applications at the end of March, data from the Mortgage Bankers Association shows.
ARMs may have gained a bit of notoriety during the subprime crisis, when mortgage lenders were offering all kinds of exotic loan products – and borrowers were happily taking them. And in the years following the recession, interest rates were generally so low that they didn’t offer much of a yield compared to a 30-year fixed-rate mortgage, which may feel more secure.
As Realtor.com’s Jones explained in an email, “Buyers who remain in their home beyond the fixed rate period face the risk of having their rate adjusted upward, potentially erasing those initial savings and adding meaningful instability to their monthly budget at a time when housing costs are already straining household finances.”
It’s also important to note that ARM terms can vary widely. For example, some adjust both upward and downward with other rates, but some only adjust upward. On the other hand, some limit the maximum interest rate you can pay.
What is a mortgage rate buydown?
Many housing professionals prefer rate rebates rather than adjustable-rate mortgages. A buydown allows the borrower to pay a set amount upfront for a lower rate over the first few years of the loan.
Dave Nichols, a loan officer at NBKC Bank in Kansas City, explains the 2-1 buydown, which he often sees, this way: If a 30-year fixed-rate mortgage costs 6.50%, the borrower will pay 4.50% for the first year and 5.50% during the second year, before resetting to 6.50% for the life of the loan.
There are some benefits to the buydown, Nichols said. Among them: They offer bigger savings than ever before. Additionally, buydowns can be a smart way to utilize credit from the seller. Those concessions often match the amount saved in the first two years of the buydown period.
For a home costing about $400,000, a typical monthly payment might be about $2,000, Nichols said. But the first year of a 2-1 mortgage could bring it to as little as $1,600.
Trusted mortgage professionals can help
One of the smartest steps any borrower can take is to work with a reliable lender.
Rates are likely to remain high and volatile as long as hostilities in the Middle East continue. But Nichols points out that lenders can also help borrowers understand the nuances involved in planning to refinance in the future.
“Find someone who will take the time to talk to you about your situation,” he said.
This article originally appeared on USA TODAY: Mortgage rates rising due to Iran war. What to do here.
Reporting by Andrea Riquier, USA TODAY/USA TODAY
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