Dear Renters,

One of my real estate agents asked me a question this week that I haven’t been able to stop thinking about, and I think renters, especially renters who eventually want to buy a home, should hear the answer too.

I had sent my agents an interesting statistic. According to research from the Federal Reserve Bank of Dallas, roughly 96% of the outstanding U.S. mortgage stock is made up of long-term fixed-rate loans. That’s remarkably different from countries like Canada, Australia and the U.K., where variable rates or mortgages that reset after much shorter fixed periods are far more common.

Josh wrote back with a good question.

If adjustable-rate mortgages usually start with a lower rate, is America’s obsession with the 30-year fixed mortgage really about Americans not trusting the government or the financial system? And what did all of this look like before 2008?

After 24 years of doing mortgages, here’s how I look at it.

We Built a Pretty Incredible Mortgage Machine

I don’t think Americans choose fixed-rate mortgages because they distrust the system. I think they choose them because the system created a ridiculously attractive product for consumers.

The 30-year fixed mortgage is possible in large part because of the enormous secondary mortgage market behind it, particularly Fannie Mae and Freddie Mac, along with government programs such as FHA and VA.

Think about the deal we’re giving the borrower.

You can borrow an enormous amount of money and lock the interest rate for as long as 30 years. If interest rates go UP, your principal and interest payment doesn’t.

If rates eventually come DOWN, you generally aren’t trapped in the old loan either. You can potentially refinance into a new mortgage without a prepayment penalty, assuming you qualify and the savings justify the closing costs.

That combination is unusual around the world.

Canada, for example, commonly uses much shorter fixed terms, and borrowers can face prepayment penalties for breaking those mortgages early. Australia is dominated by variable-rate lending. The U.K. commonly fixes rates for shorter periods, and then borrowers have to deal with whatever the market looks like when that period ends.

America basically said: we’ll give you 30 years of protection from rising rates, but we won’t force you to keep the loan for 30 years if rates fall.

That’s a pretty good deal. Borrowers figured that out.

Then 2008 Happened

This is where the psychology gets interesting.

In the early 2000s, probably 25% to 30% of the loans I personally originated were adjustable-rate mortgages.

Nationally, ARMs were a much bigger part of the market too. Freddie Mac reported that adjustable-rate mortgages reached 40% of conventional home-purchase loans in June 2004, and ARMs represented about 34% for that entire year.

Then the housing market blew up.

I don’t think it’s accurate to say ARMs caused the financial crisis. That gives one mortgage product way too much credit. There was plenty of blame to go around: terrible underwriting, subprime lending, stated-income loans, option ARMs, negative amortization, excessive leverage and people buying homes who had almost no ability to absorb a financial shock.

But borrowers remember what happened.

They remember teaser rates.

They remember payments changing.

They remember neighbors losing homes.

And somewhere along the way, the three letters A-R-M became the mortgage equivalent of a shark fin coming out of the water.

Here’s the funny part.

My own mortgage on my West Sacramento home was an ARM.

And when everything went sideways, my rate went DOWN.

That ARM helped me tremendously.

I wish I could tell you that was because I saw the financial crisis coming and brilliantly positioned myself ahead of it.

Nope. I wasn’t that smart.

What I did know was that people didn’t tend to stay in homes nearly as long back then. Redfin’s historical data shows the typical homeowner in 2005 had been in their home about 6.5 years.

I also didn’t think I was going to be in that particular house forever. So taking the lower ARM rate made sense for my life at the time. That’s an important distinction.

The ARM wasn’t necessarily the bad product. The bad decision was putting someone into an adjustable mortgage when they couldn’t financially survive what could happen after the fixed period ended.

Today’s ARMs are also very different from many of the exotic mortgage products floating around before the financial crisis.

Why Are We Still So Afraid of ARMs?

Because buying a home isn’t just a math problem.

It’s the biggest financial obligation most people will ever take on, attached to the place where their family sleeps every night.

An ARM introduces uncertainty.

Let’s say you take a five-year ARM. You know exactly what your rate is for five years. After that, the rate can adjust within the limits spelled out in the loan.

Maybe rates are lower. Great. That’s the best-case scenario. But what if they’re higher?

You might refinance, sell, pay the loan off, or simply absorb the new payment. But you don’t know today which of those choices will be attractive or even available five years from now.

That’s where psychology kicks in.

Behavioral economists call part of this loss aversion. Research by Daniel Kahneman and Amos Tversky has consistently found that people tend to feel the pain of a loss more strongly than the pleasure of an equivalent gain.

So saving $200 a month today feels good.

The possibility of paying $500 more someday feels awful.

And here’s something else that has changed since the housing boom.

People aren’t moving nearly as often.

Redfin reports that the typical homeowner now stays in a home about 12 years, compared with just 6.5 years in 2005.

That matters when you’re considering a five or seven-year ARM.

Twenty years ago, there was a better chance you’d move before the loan ever started adjusting. Today, there’s a pretty good chance you’re still sitting at the same kitchen table when that adjustment arrives. That doesn’t make ARMs bad. It makes the time horizon more important.

When one of my clients tells me an ARM makes them nervous, I don’t try to talk them out of that feeling. Fear is sometimes useful information.

Now Let Me Talk to the Renters

Here’s the part I think gets missed. If you’re renting, you already have an adjustable-rate housing payment. We just call it rent. When your lease expires, your landlord can potentially reprice your housing cost based on the market, inflation, operating expenses and what the law allows.

Let’s use simple math.

Suppose you’re paying $2,500 per month today and your rent increases an average of 4% per year. Ten years from now, you’re paying roughly $3,700 per month for essentially the same walls. That’s an increase of about $1,200 a month.

Now compare that with a 30-year fixed mortgage.

Your property taxes can change. Your homeowners insurance can absolutely change, as California homeowners have learned the hard way. HOA dues can change. Maintenance certainly isn’t free.

But the principal and interest portion of a 30-year fixed mortgage doesn’t go up because inflation went up. That’s a remarkable feature.

Inflation happens. Wages hopefully rise. The price of dinner rises. Insurance goes up. Construction costs go up. And historically, home values have tended to rise over long periods too, although certainly not every year and never guaranteed.

Historically, home values have tended to rise over long periods too, though not every year and never guaranteed. Meanwhile, the principal and interest payment you locked years earlier just sits there. You’re eventually paying yesterday’s debt with tomorrow’s dollars.

That’s why I’ve come to think of the 30-year fixed mortgage as more than just a mortgage. For the right homeowner, it’s an inflation hedge on one of the biggest pieces of the household budget.

What About Mortgage Rates Over 7%?

This is where things get interesting again.

As I write this, mortgage rates have moved back above 7%, and borrowers are understandably looking for relief. ARMs are getting attention again.

According to the Mortgage Bankers Association, ARMs represented 10.3% of mortgage applications in its latest weekly survey, remaining at the highest share since October 2025. The ARM rate was about 80 basis points below the average 30-year fixed rate.

So I understand the attraction. If you’re reasonably certain you’ll sell within the initial fixed period, an ARM may deserve a look. If you’re financially strong enough to absorb a future adjustment, maybe it belongs in the conversation.

If the savings are substantial enough, let’s do the math.

I don’t hate ARMs. Mine helped me. But I also understand why most of my buyers still gravitate toward the 30-year fixed. They want to know what they owe. Then they want to stop thinking about it. There’s something valuable about that.

So What Would I Do Today?

For many buyers, I would at least look at whether we can negotiate a seller credit and use some of that money to reduce the cost of financing, whether that’s through a permanent rate buydown, a temporary buydown or simply reducing closing costs.

Then we compare it with the ARM.

Not because one of those is universally better. Because the right mortgage depends on what you’re trying to accomplish. How long are you likely to own the house? How much does the ARM actually save? What happens if rates don’t fall? Could you comfortably handle the payment if the ARM adjusted higher? And how much is certainty worth to you?

Those questions matter more to me than which mortgage happens to have the lowest advertised rate today.

If you’re renting and wondering whether buying makes financial sense, I’m happy to run the numbers with you. Call or text me at 916-257-1470. No sales pitch. No lecture about how renting is throwing money away, because sometimes renting is absolutely the right decision.

Dan Tharp
Dan the Mortgage Planner
Senior Loan Officer | Guild Mortgage
NMLS #280913
Licensed in California and Florida

Sources

Federal Reserve Bank of Dallas, research on the U.S. fixed-rate mortgage market.
Mortgage Bankers Association, Weekly Mortgage Applications Survey, October 7, 2026.
Freddie Mac, historical ARM survey data and Primary Mortgage Market Survey.
Redfin, 2026 homeowner tenure analysis.
Research on loss aversion by Daniel Kahneman and Amos Tversky.

This information is for educational purposes only and is not a commitment to lend or financial advice. Mortgage programs, interest rates and terms are subject to change and borrower qualification. Adjustable-rate mortgages can result in higher payments after the initial fixed period. Refinancing requires qualification and may involve closing costs. Home values and rents are subject to market conditions and are not guaranteed to increase.