Mortgage rates rose last week, pushing more homebuyers toward adjustable-rate loans in search of lower payments. Demand for these riskier products accounted for 8.5% of all mortgage applications, according to data from the Mortgage Bankers Association (MBA). This marks an increase from 8% the previous week and represents the highest share since June.
The shift stands in stark contrast to the early pandemic period, when historically low interest rates drove ARM demand to barely 3%. While these loans carry more uncertainty, they currently offer lower initial rates compared to fixed alternatives. A five-year ARM averaged 5.82%, down from 5.94%, whereas the average contract rate for a 30-year fixed mortgage with conforming balances rose to 6.85% from 6.79%.
Joel Kan, MBA’s vice president and deputy chief economist, attributed the rise to persistent investor anxiety regarding inflation and the federal budget deficit. He noted that the 30-year fixed rate is now at its highest level since June 2025 and is 36 basis points higher than it was a year ago.
The higher borrowing costs contributed to an overall decline in mortgage activity. Total application volume fell 2.7% week-over-week. Refinancing applications dropped the most, sliding 6% for the week and standing 25% below levels seen a year ago—the slowest pace since May 2025. Purchase applications remained nearly flat, decreasing only 0.2%, though they remain 4% higher than the same period last year.
“Higher mortgage rates continue to weigh on prospective homebuyers looking to act, even as housing inventory has increased in many markets,” Kan said.
Looking ahead, mortgage rates held steady at the start of the current week. Investors are now awaiting monthly inflation data scheduled for release later this week, which could cause significant volatility in rates depending on the results.
Good old inflation fear pushing people into riskier loans again. It’s the same song, different decade. Homeowners deserve better stability.
I’m skeptical this trend will last. Once people realize how volatile rates are, they’ll never go back to adjustable mortgages.
Did anyone else notice refinancing is down 25% year-over-year? That is a massive drop and tells a scary story about equity withdrawal.
This feels like the calm before the storm. If inflation data comes in hot, those ARMs are going to bite these buyers hard.
I switched to a five-year ARM last month. The lower rate helped my monthly budget, but I am nervous about what happens in year six.