Mortgage rates are surging as conflict in Iran fuels economic uncertainty. The 30-year fixed-rate mortgage recently jumped to 6.38%, erasing earlier gains that briefly pushed it below 6%.
With home prices still high and household budgets strained, many buyers are turning to adjustable-rate mortgages (ARMs). These offer lower initial rates-typically fixed for five or seven years-before adjusting based on benchmarks like SOFR.
Scott Bridges of Pennymac calls ARMs “strategic,” noting they provide breathing room to refinance later when rates fall. For a median-priced home with 10% down, a 5/1 ARM saves about $185 monthly, according to Realtor.com economist Hannah Jones.
ARM usage is highest in expensive markets: over 31% of new loans in California, 28% in Washington, D.C., and 24% in Massachusetts in 2025.
Still, risks remain. Post-introductory rate hikes could erase early savings, especially if borrowers stay beyond the fixed term.
Alternatively, some opt for rate buydowns. A common 2-1 buydown on a 6.50% loan lowers payments to 4.50% in year one and 5.50% in year two. On a $400,000 home, that cuts monthly payments from $2,000 to roughly $1,600 initially.
Experts stress working with trusted lenders to navigate volatility and plan for future refinancing amid ongoing geopolitical instability.