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With adjustable rate mortgage demand reaching a yearly high this week, it's a good time to assess the risks and rewards of this loan type.
ARMs have taken a lot of the blame for the 2008 housing crash, but ARMs weren't the only factor that helped inflate the housing bubble.
Plus, today's ARMs come with built-in safeguards that pre-2008 loans didn't always have.
Whether an ARM would work for your home purchase depends on how long you'll keep the home and how much you can save.
...in as little as 3 minutes — no credit impact
Why "riskier mortgages" is back in the headlines
ARM applications recently climbed to about 8.5% of all mortgage activity, according to recent industry survey data. That's he highest share since June and the third straight weekly increase.
The reason is simple: When the gap between fixed and adjustable rates widens, ARMs become more attractive.
Right now, the average 30-year fixed rate sits at 7.19%, while Better's own 7/6 SOFR ARM is priced around 6.75%, a spread wide enough to lower a monthly payment. On a $400,000 loan, that difference works out to roughly $118 less per month during the ARM's fixed period.
This example is for illustrative purposes only. Rates, payments, and total interest will vary based on credit profile, loan terms, and market conditions.
What 'riskier' ARMs actually meant in 2008 and why today's ARMs are different
The word "riskier" attached itself to ARMs for a reason, but it's worth being specific about what actually went wrong before 2008, because today's products don't share those features.
Pre-2008 ARMs frequently included teaser rates that were artificially low for a few months before jumping sharply, negative amortization structures that let a loan balance grow instead of shrink, and low- or no-documentation underwriting that approved borrowers based on the low introductory payment rather than their ability to afford the loan once it adjusted.
None of that describes a standard ARM today. Since the 2008 crisis, federal rules require lenders to underwrite a borrower's ability to repay based on the loan's fully-indexed rate — the rate it could reach after adjustment — not the low introductory payment.
Today's 7/6 SOFR ARM, for instance, also carries a standard cap structure, typically written as 2/1/5: a 2-percentage-point limit on the first adjustment, a 1-point limit on each subsequent six-month adjustment, and a 5-point lifetime limit.
That structure doesn't eliminate risk, but it's a different product than the ones that failed en masse in 2008.
Learn more about how the 7/6 SOFR ARM works, including how its index and margin are calculated.
Where today's ARM share actually sits, historically
Context helps here, because "highest since June" sounds more dramatic than it is once you zoom out. ARM share has moved through a wide range over the past three decades:
| Period | Approximate ARM share of applications |
|---|---|
| 1995–2004 (long-run average) | ~18.3% |
| 2005 (housing bubble peak) | Up to ~52% |
| 2009 (post-crash trough) | ~1% |
| 2013 | ~12% |
| 2018 | ~5.6% |
| 2020–2021 (record-low rates) | ~3% |
| 2026 (current) | ~8.5% |
Two things stand out. Today's roughly 8.5% share is still well below the 18.3% long-run average from the decade before the housing bubble. ARM activity isn't even back to what was historically typical, let alone bubble-era territory.
And the 2005 peak of roughly 52% reflects a different lending environment entirely, one where ARMs were often the only way a marginal borrower could qualify for a home at all. That's not what's happening now.
Who's actually taking out ARMs right now
If ARMs were creeping back toward risky territory, you'd expect to see it in the borrower profile: thinner credit files, smaller down payments, borrowers stretching to qualify, for example.
Recent housing-finance research shows the opposite: today's typical ARM borrower has a higher credit score, a lower loan-to-value ratio, and a larger loan balance than the typical fixed-rate borrower. That's close to the reverse of the 2005–2008 pattern, when looser underwriting let ARMs extend credit to borrowers who wouldn't have qualified for the equivalent fixed-rate loan.
This tracks with who tends to gravitate toward an ARM in the first place: buyers financing above the conforming loan limit, borrowers with strong credit profiles who plan to sell or refinance within the fixed period, and borrowers comfortable weighing a lower rate now against less certainty later.
...in as little as 3 minutes — no credit impact
What real risk remains, and how to price it in
None of this means an ARM is risk-free. It's not. It would be a disservice to suggest otherwise. The caps limit how much your rate can rise, but they don't prevent it from rising at all.
Take that same $400,000 loan at 6.75%. If your rate hit its full initial adjustment cap of 2 percentage points, landing at 8.75%, your payment could rise to roughly $3,147 a month, up from about $2,594 during the fixed period. That's a real, material increase to a household budget, not a rounding error.
Example is for illustrative purposes only. Rates, payments, and total interest will vary based on credit profile, loan terms, and market conditions.
The other genuine risk is that SOFR, the benchmark your rate adjusts against, moves with broader interest-rate conditions no one can predict years in advance. A plan to refinance or sell before your fixed period ends is reasonable, but it's a plan, not a guarantee.
That's why "should I get one" is a separate question from the "are they inherently risky" question this article addresses. If you're weighing whether an ARM fits your timeline and budget, this breakdown of who should actually consider an ARM in 2026 walks through that decision profile by profile. See also fixed vs. adjustable-rate mortgages, or, if you already hold an ARM, refinancing out of an ARM.
The bottom line
The recent rise in ARM demand is a rate-spread story, not an underwriting-risk story.
Rates on 30-year fixed mortgages and ARMs have simply moved apart enough that more borrowers find the trade-off worthwhile, and they tend to be the borrowers best positioned to handle it, not the ones stretching to qualify. For more on how rates move in the first place, see what determines mortgage rates.
That doesn't mean an ARM is right for everyone, or that the risk of a future payment increase isn't real. It means the "riskier mortgages" framing describes a demand shift, not a return to 2008-style lending.
The most useful next step is seeing your own numbers: what a 30-year fixed and a 7/6 SOFR ARM would actually cost you, side by side, based on your real credit profile and estimated monthly payment.
...in as little as 3 minutes — no credit impact
Frequently asked questions
Are ARM loans actually risky, or is that an outdated reputation from the 2008 crash?
Pre-2008 ARMs often used teaser rates and low-documentation underwriting that let borrowers qualify without proving they could afford the loan once it adjusted. Today's ARMs are underwritten to their highest possible future payment and carry standard rate caps — a structurally different, safer product.
I have a 720 credit score. Is an ARM a smart move for me right now?
A 720 score could qualify you for competitive pricing on either a fixed-rate mortgage or an ARM, so credit isn't the deciding factor. Your timeline is: if you expect to sell or refinance within the ARM's fixed period, the lower initial rate is a real advantage. If you plan to stay long-term, weigh that savings against payment uncertainty after adjustment.
What happens to my payment if rates are higher when my 7/6 ARM adjusts in year eight?
Your new rate is based on the SOFR index plus your lender's margin, subject to your cap structure — typically a 2-percentage-point limit at the first adjustment. On a $400,000 loan starting around 6.75%, hitting that full cap would raise your rate to roughly 8.75% and your payment by several hundred dollars a month. It's worth budgeting for before choosing an ARM.
I'm planning to sell in 5 years. Does that change how risky an ARM is for me?
Yes. If a 7/6 SOFR ARM's seven-year fixed period covers your expected time in the home, you'd likely sell before it ever adjusts, removing the main source of ARM risk. The caveat: be honest about that timeline, since plans to sell or relocate can change.
Why are more people choosing ARMs right now if they're considered risky?
Largely because the rate gap between fixed and adjustable loans has widened enough to make the trade-off worth it for more borrowers. Today's ARM borrowers also tend to have stronger credit and larger loan balances than average — financially prepared borrowers making a rate-driven choice, not reaching for a loan they otherwise couldn't get.
Do I need a higher credit score to qualify for an ARM than a fixed-rate loan?
Not necessarily higher, though ARMs can involve slightly more underwriting scrutiny, since lenders must confirm you could afford the loan at its highest possible future rate. In practice, the profile that qualifies you for a competitive fixed-rate loan generally puts you in a strong position for an ARM too.
What's actually different between a 2026 ARM and the ARMs from the 2008 crisis?
Three things: underwriting, documentation, and structure. A 2026 ARM is underwritten to its fully-indexed rate under federal ability-to-repay rules, requires full income and asset documentation, and includes standard caps on how much the rate can move per adjustment and over the loan's life. Pre-2008 ARMs frequently had none of those safeguards.
Rates and figures referenced in this article are based on Better Mortgage data and recent industry survey data as of publication and are for informational purposes only. Rates are not guaranteed and actual rates, payments, and terms vary by borrower, loan type, and market conditions.