A Redfin analysis of five decades of mortgage data finds that adjustable-rate mortgages have given most borrowers a window to refinance into a lower fixed rate before their introductory period even ends.
Source: Original report
The Historical Case for Adjustable-Rate Mortgages
Choosing an adjustable-rate mortgage over a 30-year fixed loan has worked out financially for most U.S. homebuyers over the past half-century, according to new research from Redfin. The analysis, which draws on Freddie Mac mortgage data going back to 1970, finds that roughly 71.6% of ARM borrowers had the chance to refinance into a 30-year fixed rate at least 0.5 percentage points below their original rate within the first five years — often before the adjustable period even kicked in.
More than half of ARM borrowers — about 52.8% — had an even larger opportunity, with prevailing fixed rates dropping a full percentage point or more below their original rate, allowing for substantially lower monthly payments upon refinancing.
"History is on the homebuyer's side," said Chen Zhao, Redfin's head of economics research. "For homebuyers who are comfortable with some uncertainty up front, ARMs are a smart way to save money now with good odds of securing an even lower fixed rate in the future."
How the Math Works in Practice
To illustrate the potential savings, consider a buyer in 2026 purchasing a $625,000 home — close to the recent median sale price in markets like Denver, Sacramento, and Newark — with a 20% down payment and a $500,000 mortgage.
- With a 30-year fixed rate at 6.5%, the monthly payment comes to roughly $3,160.
- With a 5/1 ARM at an introductory rate of 5.75%, the monthly payment drops to about $2,918 — saving around $240 per month.
- Over the five-year introductory window, the ARM borrower saves approximately $14,500 compared to the fixed-rate borrower.
If rates then fall to 5.5% by the time the introductory period closes in 2031, the ARM borrower could refinance into a new fixed mortgage at that rate, bringing monthly payments down to roughly $2,633. Because the ARM's lower early rate directed more of each payment toward principal, the ARM borrower's balance is slightly smaller at refinance — resulting in a monthly payment about $25 less than a fixed-rate borrower who refinanced at the same time. Over the full loan term, the ARM borrower could end up paying approximately $23,000 less in total mortgage costs under this scenario.
ARM Intro Rates Have Consistently Undercut Fixed Rates
The savings advantage for ARMs starts at origination. As of early September, the average 30-year fixed rate stood at 6.88%, while the average ARM rate was 6.47% — a gap of more than 40 basis points. Earlier in 2025, that spread was even wider, with ARM borrowers saving around $150 per month compared to fixed-rate borrowers, based on average rates of 5.51% versus 6.19%.
Looking back across decades, ARM intro rates have almost always come in below 30-year fixed rates, making them immediately cheaper for borrowers regardless of what happens with future rate movements.
When ARMs Don't Pay Off
The strategy is not without risk. Historical data shows several periods in which ARM borrowers did not get the chance to refinance into a meaningfully lower rate within five years. In those cases, their rate reset to the prevailing market rate once the fixed period expired. The most notable recent example occurred during 2020 and 2021, when fixed mortgage rates fell to historic lows near or below 3%. Buyers who locked into those rates at origination had little reason to consider an ARM, and those who did likely found no refinancing opportunity that improved on their position.
Consumer Protections Have Made ARMs Safer
Post-financial-crisis regulations have significantly reduced the risks associated with ARMs. Today's adjustable-rate products come with rate caps that limit how sharply rates can rise in any given adjustment period and over the life of the loan. Lenders also typically require ARM borrowers to qualify based on a higher assumed rate, building in a financial cushion in case rates climb after the introductory phase.
For borrowers who plan to sell or refinance within five to seven years, or who expect interest rates to decline, the historical evidence suggests an ARM is worth a serious look. The data shows it has been the smarter financial choice more often than not.
Source: Redfin analysis of Freddie Mac Primary Mortgage Market Survey data. Methodology defines a refinancing opportunity as a period of at least one full quarter in which the prevailing 30-year fixed rate is at least 50 basis points below the borrower's original rate. Analysis covers origination quarters beginning in 1970 through the most recent available data.
