A risky mortgage instrument that helped spark the Global Financial Crisis is on the rise, but 3 things are different this time around

A Risky Mortgage Instrument on the Rise

Adjustable-rate mortgages (ARMs), which played a major role in the 2008 Global Financial Crisis, are becoming increasingly popular again. However, three key differences mark this resurgence.

Current Popularity of ARMs

The share of ARMs has climbed to nearly 13% of all mortgage applications this fall, the highest since 2008, according to the Mortgage Bankers Association. Homebuyers are drawn to ARMs because they offer significantly lower starting interest rates compared to fixed-rate loans.

The typical 5/1 ARM has an interest rate in the mid-5% range.
This contrasts with 30-year fixed rates, which are around 6.3% or higher.
On a $400,000 loan, this initial rate difference can save borrowers around $200 or more per month.

The Appeal for Buyers

This monthly saving is often enough to encourage first-time buyers or those aiming for larger homes to choose ARMs over fixed-rate options.

Inherent Risks of ARMs

By nature, ARMs are a bet on future interest rates. After the initial fixed period—commonly five, seven, or ten years—the rate resets according to market conditions.

“Today, that means buyers are betting the Federal Reserve will cut rates before their loan recalculates.”

Context from 2008 vs. Today

Before the 2008 crash, a decline in home prices was considered unlikely, just as today, the federal rate hike is seen as the modern equivalent risk.

About the Author

Nick Lichtenberg is Fortune's business editor and formerly served as executive editor for global news.

“A risky mortgage instrument that helped spark the Global Financial Crisis is on the rise, but three things are different this time around.”

Summary: Adjustable-rate mortgages are gaining traction amid high fixed rates, offering short-term savings but involving future rate risks tied to Federal Reserve actions.

Fortune — 2025-11-04