Mortgage demand drops as rates climb, ARM interest rises

Mortgage rates moved up again last week, prompting more borrowers to search for savings. They found that in riskier, adjustable-rate mortgages, or ARMs.

Demand for those loans made up 8.5% of all mortgage applications last week, up from 8% the previous week, according to the Mortgage Bankers Association, and the highest level since June. In the first years of the pandemic, when mortgage rates fell to historic lows, demand for ARMs was barely 3%.

ARMs offer lower rates and can be fixed for up to 10 years. As a comparison, the average contract interest rate last week for 30-year fixed-rate mortgages with conforming loan balances, $832,750 or less, increased to 6.85% from 6.79% the previous week, with points rising to 0.67 from 0.65, including the origination fee, for loans with a 20% down payment. The average rate for a five-year ARM fell to 5.82% from 5.94%.

Higher rates on the 30-year fixed caused total mortgage demand to drop again. Total application volume declined 2.7% for the week, according to the MBA's seasonally adjusted index.

"Mortgage rates moved higher last week, driven by ongoing investor concerns over inflation and the federal budget deficit. The 30-year fixed rate increased to 6.85 percent, the highest since June 2025 and 36 basis points higher than a year ago," said Joel Kan, vice president and deputy chief economist at the MBA.

Applications to refinance a home loan fell hardest, down 6% for the week and 25% lower than the same week one year ago. That is the slowest pace since May 2025.

Applications for a mortgage to purchase a home were essentially flat, down 0.2% for the week. They were 4% higher than the same week one year ago.

"Higher mortgage rates continue to weigh on prospective homebuyers looking to act, even as housing inventory has increased in many markets," Kan added.

Mortgage rates were unchanged to start this week, according to a separate survey from Mortgage News Daily. Investors are waiting for monthly inflation numbers set to be released at the end of this week. Those could move mortgage rates sharply in either direction, depending on the outcome.