More buyers turned to ARMs in October as fixed rates climbed. Federal lending records show who uses them in Oakland County, and the payment math shows what the lower start rate buys and what it risks.
By BIG Real Estate · November 5, 2026
With the 30-year fixed rate back above 7%, more buyers are asking lenders about adjustable-rate mortgages (ARMs). The Mortgage Bankers Association's October survey, summarized by the National Association of Home Builders on Nov. 4, put the average 5-year ARM contract rate at 6.4%, against 7.4% for the 30-year fixed. ARMs made up 10.8% of all mortgage applications in October, up 1.5 percentage points from September, even as total applications fell 14.1% for the month.
A rate one point lower is real money. But an ARM is a different product, not a discount on the same one. Below, we look at who actually uses ARMs in Oakland County, how the rate resets, and what happens to the payment if rates don't fall.
Who uses ARMs in Oakland County
We used the FFIEC HMDA Data Browser file of 2025 home-purchase loans in Oakland County: first-lien loans on one-unit homes the buyer planned to live in, without reverse mortgages, home-equity lines or business loans. That covers 12,899 loans.
12.2% of them were ARMs (1,578 loans), up from 9.0% in 2024 and 10.0% in 2023. Statewide, the same calculation gives 6.9% for 2025, so Oakland buyers used ARMs almost twice as often as the rest of Michigan.
Loan size drives most of that difference. Share of 2025 purchase loans that were ARMs, by loan amount:
- $300,000 or less (6,045 loans): 4.6%
- $300,001–$500,000 (4,348 loans): 10.9%
- $500,001–$832,750 (2,013 loans): 23.1%
- $832,751–$1.5 million (346 loans): 69.1%
- Over $1.5 million (147 loans): 82.3%
Loans above the 2026 conforming limit of $832,750 for Oakland County are called jumbo loans, and Fannie Mae and Freddie Mac won't buy them. Seven in ten of those were adjustable. Banks that hold jumbo loans on their own books often price ARMs more favorably than 30-year fixed loans. Among loans within the conforming limit, 9.7% were ARMs. FHA and VA loans almost never were (1.7% and 0.7%).
The typical 2025 ARM borrower in these records reported $198,000 in income and borrowed $515,000, compared with $120,000 and $295,000 for fixed-rate borrowers. ARM borrowers also put more down: the median loan was about 82% of the property value, versus about 90% for fixed-rate loans.
By community, the share follows home prices. ARMs were 36% of 2025 purchase loans in Birmingham, 31% in Bloomfield Township and 19% in Troy. In Royal Oak and Rochester Hills the figure was about 12%. It was 6% in Madison Heights, Berkley and Ferndale, 4% in Oak Park and Clawson, and under 3% in the city of Southfield. (Communities are matched to census tracts; Beverly Hills, Bingham Farms and Franklin are counted with Southfield Township and not shown separately.)
Most local ARMs were not short-fuse loans. In 2025, 54% had a seven-year initial fixed period, 29% had five years, and about 4% had ten.
How the rate actually resets
Most conforming ARMs today follow Fannie Mae's rules (Selling Guide B2-1.4-02). The rate stays fixed for the initial period, then adjusts every six months. At each reset, the new rate is an index plus a margin. The index is the 30-day average of SOFR (Secured Overnight Financing Rate) published by the Federal Reserve Bank of New York. The margin is set when you close, Fannie caps it at 3 percentage points, and the rate can never fall below it.
Caps limit how far the rate can move. A common setup on five-year ARMs is called 2/1/5: up to 2 points at the first reset, 1 point at each later reset, and never more than 5 points above the starting rate. A lender's standard 5/6 SOFR disclosure uses exactly those terms with a 2.75% margin. Seven- and ten-year ARMs are commonly 5/1/5, which allows the full 5-point jump at the first reset. Caps and margins vary by lender, so read the ones in your own loan estimate.
On Nov. 4 the 30-day average SOFR was 3.91% (FRED, from the New York Fed), after the Federal Reserve raised its target range to 3.75%–4.00% in September and held it in October. Add a 2.75% margin and round to the nearest eighth, and a loan resetting today would land at about 6.625%. That's a little above the 6.4% average start rate. In other words, today's ARM discount comes from where lenders set the starting rate, not from a low index. If the index stays where it is, the rate goes up modestly at the first reset.
The payment math on a $400,000 loan
These figures are principal and interest only. Taxes and insurance are the same either way. We used 7.24%, Freddie Mac's 30-year average for the week of Oct. 29 (FRED), and 6.40% for a five-year ARM with 2/1/5 caps. These are illustrations, not quotes.
- Monthly payment, years 1–5: 30-year fixed at 7.24% $2,726 · 5-year ARM at 6.40% $2,502
- Paid in principal and interest over 5 years: fixed $163,560 · ARM $150,120
- Balance owed after 5 years: fixed $377,476 · ARM $374,010
Over five years the ARM saves about $13,400 in payments and leaves you owing about $3,500 less, roughly $16,900 in total. On a $700,000 loan, the same comparison is about $392 a month and roughly $29,600 over five years.
What happens next depends on the index:
- Index unchanged (reset to 6.625%): the payment rises to about $2,555, still about $170 below the fixed payment.
- First reset at the 2-point cap (8.40%): about $2,986, roughly $260 above the fixed payment.
- Lifetime cap (11.40%), reachable in year seven: about $3,774, roughly $1,050 more than the fixed loan.
In the worst case, where the rate climbs to every cap as fast as the loan allows, the five years of savings are gone by the end of year seven. After that, the ARM costs more every month. Rates can fall, too. If they drop by the time of the reset, the payment falls and the ARM borrower gets the lower rate without paying to refinance. Nobody knows which path rates will take.
The qualifying-rate catch
Many buyers look at ARMs to qualify for a bigger loan. On a five-year ARM, that usually doesn't work. Fannie Mae's underwriting system qualifies a five-year ARM at the higher of the fully indexed rate or the note rate plus 2 points (Selling Guide B3-6-04). At a 6.40% start rate, the lender tests your debt-to-income ratio at about 8.40%. On a $400,000 loan that's a $3,047 payment, higher than the 30-year fixed payment. Seven- and ten-year ARMs qualify at the note rate, so they can make a modest difference. Lender overlays and jumbo programs may set their own tests.
Who an ARM can make sense for, and who should be careful
An ARM is easiest to justify when the timeline is clear. A buyer who expects to sell or move within the fixed period, or who has the income and savings to absorb a capped payment increase, keeps the savings. That fits the local data: ARM borrowers here mostly had higher incomes, larger down payments and seven-year terms.
Be more cautious if the plan depends on refinancing before the reset. A refinance takes good credit, enough equity and a lower rate when you need one, and none of those is guaranteed. Be cautious, too, if your budget is already tight at the starting payment, or if you're buying a home you plan to stay in for a decade or more.
Two related tools are worth comparing. A seller-paid permanent rate buydown lowers a fixed rate for the life of the loan, and a 15-year fixed averaged 6.60% for the week of Oct. 29 (FRED), for buyers who can carry a higher payment. With Oakland County listings up about 25% from a year earlier in September (our September market report), sellers have more reason to consider credits.
Questions to ask a lender before choosing an ARM
- What is the index, the margin, and the cap structure (for example, 2/1/5 or 5/1/5)?
- What is the fully indexed rate today, and is the starting rate above or below it?
- What is the maximum payment, and how soon could I reach it?
- What qualifying rate are you using for my debt-to-income ratio?
- Is there a prepayment penalty, a conversion option, or a fee to convert?
- How does the ARM compare with a 30-year fixed with points or a seller-paid buydown on the same home?
Federal rules require advance notice before your rate changes (Regulation Z, 12 CFR 1026.20). The first adjustment notice comes 210 to 240 days before the first new payment is due. Later notices come 60 to 120 days ahead. Use that window to compare refinancing, selling or keeping the loan.
What this data can't tell you
HMDA records describe 2025 loans, not today's applications, and they include no credit scores. The lower median rate on Oakland ARMs in 2025 (5.99% versus 6.625% for 30-year fixed conventional loans) partly reflects who borrowed: ARM borrowers had larger loans, higher incomes and more equity. Loan amounts are reported in $10,000 bands. The October MBA figures are national averages of weekly survey data. The 2026 HMDA data, expected around March 2027, will show whether Oakland buyers moved further toward ARMs this year.
The bottom line: in today's market, a five-year ARM costs about $220 less a month per $400,000 borrowed, and the fixed period protects you for five to ten years. In return you take on rate risk later. In Oakland County, ARMs have mostly gone to buyers with large loans, big down payments and room in their budgets, and that's the profile they fit best.
This article is general information, not mortgage or financial advice. Loan terms, caps, margins and qualifying rules vary by lender and program; confirm your own options with a licensed lender. Rates and payment examples are illustrations based on the published averages cited. Figures from public HMDA records and the payment calculations are BIG Real Estate's.