What 7% mortgage rates and ARMs could mean for Florida homebuyers and sellers

Mortgage rates are back over 7%, adjustable-rate mortgages (ARMs) are suddenly popular again, and Florida is one of the states with more homeowners sitting close to (or already) underwater. That’s a spicy combination.

If you’re trying to buy, thinking about selling, or already own a home in a place like Southwest Florida, this environment can feel confusing and a little scary. Let’s walk through what’s going on, what it might mean for you, and how to protect yourself from some very real risks.

Why 7% mortgage rates feel so different now

On paper, 7% mortgage rates don’t sound outrageous to people who remember double-digit rates in the 1980s. But comparing today to the 80s is apples to oranges.

Back then, home prices were much lower relative to income. Today, homes cost a much bigger share of what people earn. So a 7% rate on a $500,000 house today can be a lot more painful than a higher rate on a much cheaper house decades ago.

Another big factor is how quickly rates changed. Not that long ago, people were locking in 2.75%–3.5% 30-year fixed mortgages. When rates jumped to 7% the first time, buyers were in shock. Many paused their plans, waiting for the “inevitable” rate cuts that never really arrived.

Now we’re several years into a higher-rate world. A lot of buyers have simply adjusted their expectations. Instead of waiting for 3–4% to magically come back, many are accepting 6–7% as the new normal and moving ahead with their plans.

Why high rates hurt resale homes more than new construction

High interest rates are usually bad news for real estate activity overall. But they don’t hit every part of the market equally.

Resale (existing) homes are at a disadvantage right now because they can’t easily compete with what many builders are offering. In a lot of Southwest Florida communities, builders are:

• Pricing new homes lower than similar resale homes
• Offering large closing cost credits
• Buying down interest rates for the full 30 years

That permanent rate buydown is a big deal. If you’re a buyer choosing between:

• An older home at 7.5% with no help on closing costs, or
• A brand-new home with thousands in closing cost assistance and a permanent rate buydown to something like 4.99–5.99%

Most buyers are going to at least seriously consider the new construction, even if they have some concerns about build quality or HOA rules.

This is one reason builder stocks can actually go up when the market expects rate hikes. Higher rates can push even more buyers toward builders who have the flexibility (and margins) to play with pricing and interest rate incentives, while individual sellers really can’t.

If buyer demand stays strong in places like Southwest Florida, there’s a real possibility that new construction prices could start rising again, especially in the next busy season. Builders are already testing higher prices in some communities.

Why ARMs and temporary buydowns are back – and why I’m wary

As rates have climbed, more people have turned to adjustable-rate mortgages (ARMs) and temporary buydowns to make payments look affordable in the short term. I’m going to be blunt: I really don’t like this trend for most people.

Here’s why.

How ARMs and temporary buydowns work

Two products have been especially popular:

• Temporary rate buydowns – For example, a 2-1 buydown where your rate is 3.5% in year one, 4.5% in year two, and then jumps to the full rate (maybe 5.5% or higher) in year three and beyond.
• Adjustable-rate mortgages (ARMs) – Commonly a 5/1 ARM, where your rate is fixed for five years and then adjusts every year based on current market rates.

Both of these are essentially bets on the future. You’re betting you’ll be able to:

• Sell before the rate adjusts, or
• Refinance into a better rate later

That’s exactly the logic behind the “date the rate, marry the house” slogan. It sounds clever. It’s also dangerous if home prices don’t cooperate or rates don’t fall.

How this is playing out in real life

We’re already seeing the downside of these bets:

• People who thought 5.5% was “too high” and took a temporary buydown are now facing adjustments into the 7–8% range.
• Homeowners who used ARMs assuming they’d refinance or sell are discovering they don’t have enough equity to do either.

One study from late 2025 found that nearly half of all loans over $1 million were ARMs. Many of those were 5/1 ARMs, which means those borrowers will eventually reset to whatever the market rate is at that time. If that reset happens in a high-rate environment and their income hasn’t grown enough, it’s a problem.

Even when rates dipped below 6.5% in early 2025, about 21% of borrowers were still taking out ARMs. That’s a lot of people signing up for uncertainty.

And remember: if your home value falls or stays flat, you may not be able to refinance out of that ARM, even if better fixed rates are available later.

“Date the rate, marry the house” – why that advice can trap you

The big flaw in the “date the rate” mindset is the assumption that you’ll always have enough equity to refinance later. That’s simply not guaranteed.

To refinance, you generally need:

• Sufficient equity (usually at least 20% to avoid PMI)
• Stable, verifiable income
• A decent credit profile

If you bought in a hot market at a high price and your local market then cooled or corrected, you might not meet that equity requirement. That’s especially true in places that saw big run-ups in prices and are now seeing meaningful pullbacks.

In those cases, you’re not just “dating” the rate. You’re stuck with it.

Florida’s higher risk of underwater mortgages

Not every state is in the same boat. Visual Capitalist recently shared data on where homeowners are most underwater on their mortgages (owing more than their home is worth). Nationally, about 3.2% of mortgages are underwater, but the risk isn’t spread evenly.

Florida is on the higher side, with about 5.4% of mortgages underwater. It’s not the worst in the country, but it’s definitely in the more vulnerable group.

They define “seriously underwater” as owing at least 25% more than the estimated value of your home. That’s a tough spot to be in. If you’re there, or even close, your options are limited:

• Refinancing is very difficult or impossible
• Selling may not fully pay off your mortgage
• Any payment shock from an ARM reset can quickly spiral into missed payments, short sales, or foreclosure

If you’re in Florida or another “red” or higher-risk state on that map, and you used an ARM or temporary buydown, this is the time to get very honest about your numbers. Don’t wait for the adjustment notice to hit your mailbox.

What higher rates could mean for buyers right now

If you’re trying to buy in this environment, here’s how I’d think about it.

1. Assume today’s rate is your rate for a long time

Don’t buy a home that only works if you can refinance into something much lower later. If you’d be stretched thin at 7–7.5% for the next 10–15 years, the house is probably too expensive for your current situation.

This doesn’t mean you’ll never refinance. It just means you’re not counting on it to survive.

2. Be cautious with ARMs and temporary buydowns

There are a few situations where an ARM can make sense (for example, you know with high certainty you’ll move in 3–5 years, and you have strong savings and equity). But for most everyday buyers, the risk is real:

• Your income may not grow as fast as your payment
• Home prices might not rise enough to give you the equity you’re counting on
• Rates might not fall in time—or at all

If you do consider an ARM or buydown, run the numbers on the fully adjusted payment and ask yourself: could I comfortably afford that if nothing else goes my way?

3. Compare resale vs new construction with the full math

Don’t just look at the sticker price. Compare:

• Purchase price
• Interest rate (including any permanent buydown)
• Closing costs (and any builder credits)
• Taxes, insurance, and HOA/condo fees

Sometimes the new build with a lower rate is clearly cheaper. Sometimes the older home with lower HOA fees and taxes wins out long-term. Put it all in a spreadsheet or calculator and look at the real monthly and total 5–10 year cost.

If you want to go deeper on how broader rate moves can affect your home value and equity, I also break that down in this article on rising bond rates and home equity.

What higher rates could mean for sellers

If you’re trying to sell a home in a market where builders are very active, you’re competing with:

• Brand-new homes
• Builder incentives and rate buydowns
• Glossy marketing and model homes

To stand out, you may need to:

• Price more competitively than you’d like
• Offer your own incentives (for example, a closing cost credit)
• Make sure your home is in great condition and shows well

In high-rate environments, buyers are extremely payment-sensitive. A $10,000 price cut or a few thousand in closing cost help can matter more to them than cosmetic upgrades.

If you’re selling and also buying, remember you’re participating in the same market on both sides. You might sell for less than your dream number—but you may also be able to buy at a discount compared with peak pricing.

If you already have an ARM or buydown, take these steps now

If you’re in an ARM or temporary buydown, don’t wait for the adjustment to sneak up on you. Here’s what I’d do:

1. Find out exactly when and how your rate adjusts

Pull out your loan documents and look for:

• The adjustment date (or dates)
• The index your rate is tied to
• The margin (what gets added to that index)
• The caps (how much your rate can rise per adjustment and over the life of the loan)

Then run a worst-case scenario: if rates stay where they are or rise slightly, what could your payment jump to?

2. Stress-test your budget

Compare your potential future payment to your current budget:

• Could you handle that payment comfortably?
• Would you need to cut back in other areas?
• Do you have an emergency fund to cushion the transition?

If the answer is “no way,” you need a plan now, not later.

3. Explore options early

Depending on your situation, potential steps could include:

• Making extra principal payments now to build equity faster (if you can afford it)
• Talking to your lender about refinance options—even if you think it’s a long shot
• Considering selling earlier than planned if the numbers truly don’t work

This is also a good moment to zoom out and look at your broader financial picture—debt, savings, and long-term goals. If you’re thinking about how your home fits into a bigger plan for financial freedom, you might like this piece where I walk through what financial freedom actually looks like in practice.

The wild card: more stimulus money

There’s political chatter about potential new stimulus—things like $5,000 per adult if a certain party wins. If something like that actually happens, it would be a huge injection of cash into the economy.

And if we learned anything from the last round of stimulus, it’s this: a lot of that money doesn’t go toward debt payoff or savings. It goes toward:

• Cars (especially used cars)
• Toys and discretionary purchases
• Down payments and bidding wars on homes

That kind of stimulus could easily reignite inflation and push prices of everything—food, cars, housing—back up again. It could also push asset prices (including real estate and speculative investments) higher in the short term, while making long-term affordability even worse.

So if you hear promises of big checks, think carefully about how it might affect both your personal budget and the broader market you’re buying or selling into.

How to protect yourself in this kind of market

We can’t control interest rates, Fed decisions, or political promises. But we can control how much risk we take on. In a high-rate, uncertain housing market, I’d focus on:

• Fixed-rate stability – For most people, a plain 30-year fixed loan you can comfortably afford is still the safest choice.
• Realistic timelines – Don’t buy assuming you’ll definitely move or refinance in a few years. Life happens.
• Conservative assumptions – Don’t count on big price gains or falling rates to bail you out.
• Strong cash reserves – An emergency fund matters even more when your housing costs are a big chunk of your income.

If you’re in Florida or another high-risk state and you’ve used an ARM, temporary buydown, or stretched to buy recently, now is the time to get proactive, not panicked. Understand your loan, stress-test your budget, and make a plan before the adjustment letter shows up.

High rates don’t mean you can’t buy or sell a home. But they do mean you need to be more careful, more numbers-driven, and a lot less trusting of catchy slogans like “date the rate.” Your future self will thank you for being the boring, cautious one right now.