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Key Takeaways
- ARM applications reached 12.9% of total mortgage applications in September—the highest since 2008—though the share has since declined to around 6%-8% as fixed rates have eased.
- Adjustable-rate mortgages contributed significantly to the 2008 housing crisis, as many borrowers with poor credit struggled to make payments when their rates increased.
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 have become more popular with homebuyers as mortgage rates remain persistently above 6%.
While those homeowners risk higher monthly mortgage payments should rates hike, housing industry officials said better lending standards are minimizing the risks 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.
Data from the Mortgage Bankers Association show that use of ARMs increased significantly in 2025. ARM applications reached 12.9% of total mortgage applications in mid-September 2025—the highest level since 2008—though the share has dropped since as mortgage rates have trended downward. This compares to about 6% of buyers who used ARMs after the 2008 housing crash.
Borrowers Turn to ARM Loans as Mortgages Rise
When mortgage rates were at their recent lows in 2021—falling below 3% at times—use of ARMs dropped off, too, MBA data shows. 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.
One reason more borrowers are relying on ARMs is that the adjustable-rate loan became a better value in the last year as short-term interest rates have declined, providing a more favorable introductory rate.
ARMs can offer home buyers significant savings. According to MBA data, a five-year ARM loan in late December 2025 offered borrowers an initial rate of around 5.79%, compared to the 6.31% rate for traditional 30-year fixed-rate loans. For a $400,000 loan, the savings in monthly payments could be about $200 a month.
Fast Fact
ARM demand tends to move in the opposite direction from fixed-rate mortgages. When fixed rates are high, borrowers gravitate toward ARMs for their lower introductory rates. When fixed rates fall, the appeal of ARMs diminishes because the rate savings shrink.
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 spike. Many couldn’t make the payments, resulting in a wave of defaults that sent the housing market reeling.
