Suddenly, Nearly One in 10 Mortgage Applicants Want Adjustable Rates. Home Buyers, Take Note

Mortgage rates jumped this month. Now, the share of adjustable-rate mortgage applications is back up to where it was two years ago — 9.6%.

What is going on? We’re here with the breakdown.

A Sharp Change in Home Buyer Activity. What’s the Matter?

Home buyers seriously backed off this month — right in the middle of the annual buying season. They did so even though there are now more homes available for sale this year.

What’s the matter? Buyers have three big things on their minds at this time:

• Economic uncertainty is causing some potential buyers to go back into a wait-and-see position.

• Home prices are higher this year, and that means monthly payments go higher, too.

• And then there are the mortgage rates.

As of April 16, 2025, the current average interest rate for the 30-year fixed mortgage was reported at 6.91%, up .17% from the previous week. Hopeful buyers may not want to go there, because it may well be 7% by the time they can lock a rate in. What a bucket of cold water, after the average 30-year fixed rate was drifting down for 12 consecutive weeks before this spike.

Mortgage interest rates go up and down all the time. Yet this particular spike in interest rates has really spooked buyers, market watchers say. It’s reflected in the numbers. The Mortgage Bankers Association survey showed mortgage demand going down by 8.5% for the week ending April 11. That’s a major change from the week before, when applications went up by 20%. Big, sudden shifts like this are important to watch.

When the average interest rate for the popular 30-year fixed-rate mortgages spikes, how do hopeful buyers respond? At this time, some are rethinking their financing. They may be looking around for loans with lower rates. Some are looking for adjustable rates, because they anticipate an interest rate drop later this year. Will that happen?

And are ARMS really that much lower now anyway? Ripple effects from persistent questions about how (or whether)  the dust will settle over batches of new tariffs have driven interest rates up across the mortgage industry. The average interest rate for the standard 5/1 adjustable-rate mortgage is rising, and now stands at 6.11%.

How Do Adjustable-Rate Mortgages Work? Are They Riskier Than Fixed-Rate Mortgages?

Stepping aside from the standard, fixed-rate mortgage can be a riskier way to buy. Adjustable-rate mortgages (ARMs) hook borrowers with lower interest rates initially, but that starter rate doesn’t stay fixed for long.

Basically, the adjustable rate starts you off on easy footing. But the lender expects more from the ARM borrower in the future.

How far into the future? It goes like this…

The 5/1 ARM has an initial, easy period for the first five years. After that, the interest rate changes, up to a given cap, every one year. Watch out for the 5/6 ARM, which after five years, it adjusts itself every six months.

Adjustable mortgage rates can go up after the initial period. Or they could go down. If federal bank rates are cut, the average mortgage rate tends to follow along, downward. But no one can tell you what rate you’ll wind up with after the “teaser” period.  

If you‘re unhappy with your rate change down the line, you can probably refinance. Yet refinancing is not quick or easy. In some cases, it can take as much effort as getting your original mortgage on the home.

Mortgage applicants who anticipate paying off their loans very quickly sometimes take adjustable rates to save some money up front. Some go with ARMs because they’re expecting major life changes and know they’ll be selling or refinancing fairly soon once they have their deed in hand. If you’re a buyer who’s prepared to pay off the mortgage in full during the initial, low-rate phase, nice. But most people can’t.

Plus, for most people, an ARM involves an extra degree of risk tolerance. Say home values take a hit, or interest rates surge back above 7% again. Borrowers need to be sure they can weather those changes.

Back in the days of the financial crisis of 2008, a large number of non-fixed mortgage holders went into default. But this isn’t a crisis, right? No, but on April 16, the Bloomberg editorial board published these concerning words under the headline The Financial Crisis of 2025? Better to Be Ready:

If there’s one thing investors have learned in recent days, it’s that there’s no way to guess what America will do next. With its on-again, off-again tariffs, the US administration has demonstrated a rare and reckless willingness to shock markets. Amid such radical uncertainty, a financial crisis isn’t out of the question.

Editorial commentaries such as this one are not a particularly good sign, to say the least.

Where Will the Interest Rates Go in the Future?

Interest rates generally start to go down when the Federal Reserve eases access to money by lowering borrowing rates for financial institutions. And rate cuts could be coming up this summer. The prospect of rates going down in the future leads buyers to think locking in a 30-year, fixed rate mortgage is less important. Buyers are much keener to lock in a fixed, 30-year loan rate when interest rates are moving upward — which isn’t the trend for 2025.

But do we know if and when rates might actually fall this year? Before the tariff turbulence, the Federal Reserve expected to make interest rate cuts. Now, the Fed says it sees uncertainty ahead.

Matthew Graham, for Mortgage News Daily, tells us this “still isn’t an environment where it makes sense to take anything for granted in terms of today’s rates being available beyond the present day.” Likewise, Forbes recently stated that “the data-dependent Fed will continue to maintain a watchful eye on economic and employment readings to inform its decisions.”

“In other words,” Forbes said, “what happens next is anyone’s guess.”

This is precisely why most people will continue to choose 30-year, fixed-rate mortgage loans. The economy isn’t predictable, so it’s often best to lock in a rate that will be. With the good old, fixed-rate mortgage, a buyer will always have the same payment to make, month after month. That can be helpful when it comes to creating a dependable budget.