Cotality Analyzes Buyers Choosing ARMs

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Cotality, Irvine, Calif., released a new study, analyzing why more homebuyers are still opting for adjustable rate mortgages even as rates begin to drop.

ARMs made up 21% of the market in Cotality’s most recent data, the highest share in three years. Despite the falling rates, the savings between conventional mortgages and ARMs are significant, Cotality noted, with a 5/1 ARM in early 2026 at approximately 5.3% and a conventional 30-year loan at around 6.1%.

These borrowers are “dating” their interest rate, not marrying it, Cotality stated, with many planning to refinance or sell before the fixed-rate period ends.

ARMs are most popular in high-cost markets where the affordability gap is widest.

“For many, choosing an ARM is less about preference and more about necessity–a bridge to affordability that comes with the expectation of refinancing or managing higher payments in the future,” said Archana Pradhan, Cotality principal economist.

California sees the largest proportion of ARMs, at 31% of mortgage originations in 2025. Washington, D.C., has 28% and Massachusetts is at 24%.

And, ARMs are particularly popular in luxury markets or high-end sectors. By December 2025, almost half of all originations over $1 million were ARMs.