Mortgage rates moved higher last week, pushing some borrowers toward adjustable-rate mortgages (ARMs) as they looked for cheaper loan options. The rise in rates also caused overall mortgage demand to fall, with total mortgage applications dropping 2.7% for the week, according to the Mortgage Bankers Association (MBA).
The share of borrowers choosing ARMs increased last week. ARM applications made up 8.5% of all mortgage applications, up from 8% the previous week, according to the MBA. ARM demand has now reached its highest level since June. ARMs are becoming more attractive to some borrowers because they usually start with a lower interest rate than a traditional 30-year fixed mortgage.
ARMs can offer a lower rate for an initial period before the rate can change. Some ARM loans can keep their starting interest rate fixed for as long as 10 years, giving borrowers lower payments during that period. ARM demand is much higher than it was during the early pandemic years. When mortgage rates fell to record lows during the first years of the COVID-19 pandemic, ARMs accounted for only about 3% of mortgage applications.
30-year mortgage rate hits 6.85%
The average rate for a 30-year fixed mortgage rose to 6.85% last week. It was 6.79% the week before, according to the MBA. The latest 30-year rate was for conforming loan balances of $832,750 or less. The loan calculation included a 20% down payment.
{{/usCountry}}The average rate for a 30-year fixed mortgage rose to 6.85% last week. It was 6.79% the week before, according to the MBA. The latest 30-year rate was for conforming loan balances of $832,750 or less. The loan calculation included a 20% down payment.
{{/usCountry}}Also read: Social Security flat-rate COLA: Why 80% of beneficiaries could lose purchasing power
Mortgage points also increased last week. The average points rose to 0.67 from 0.65, including the origination fee, for borrowers making a 20% down payment. The 30-year fixed mortgage rate is now at its highest level since June 2025. It is also 36 basis points higher than it was a year ago, according to Joel Kan, MBA vice president and deputy chief economist.
Kan said mortgage rates increased because investors remained worried about inflation and the federal budget deficit. “Mortgage rates moved higher last week,” Kan said, pointing to these concerns as the main reasons for the increase, according to CNBC.
5-year ARM rate falls
While 30-year fixed mortgage rates climbed, the average rate for a 5-year ARM moved lower. The rate fell to 5.82% from 5.94% the previous week. The gap between the two loan types is giving some borrowers a reason to consider ARMs. A 5-year ARM at 5.82% has a lower starting rate than the 6.85% average for a 30-year fixed mortgage.
However, ARMs carry more risk because their rates can change after the initial fixed period. Borrowers choosing these loans may get lower payments at first but could face higher payments later if interest rates rise.
Total mortgage demand falls
Higher 30-year mortgage rates caused total mortgage demand to fall again. Total mortgage application volume dropped 2.7% from the previous week, according to the MBA’s seasonally adjusted index.
Refinancing activity took the biggest hit. Applications to refinance an existing home loan fell 6% for the week, according to the MBA. Refinance demand is also much weaker than it was a year ago. Applications were 25% lower than during the same week last year. The latest refinancing activity was the slowest since May 2025. This shows that higher mortgage rates are continuing to make refinancing less attractive for many homeowners.
Also read: Brent oil price crosses $100: Why Middle East conflict is driving crude prices higher
Home-purchase mortgage applications were more stable. Applications for loans to buy homes fell just 0.2% from the previous week, according to the MBA. Despite the weekly decline, purchase applications were still higher than last year. They were 4% above the level recorded during the same week a year ago.
Higher borrowing costs are still making some potential buyers hesitate. Kan said higher mortgage rates continue to weigh on people who want to buy homes, even though housing inventory has increased in many markets.
Mortgage rates could move again this week
Mortgage rates were unchanged at the start of this week. That is according to a separate survey from Mortgage News Daily. Investors are now waiting for the latest monthly inflation data. The inflation numbers are expected to be released later this week.
The inflation report could have a major impact on mortgage rates. Depending on whether inflation comes in higher or lower than expected, mortgage rates could move sharply in either direction.
For now, higher 30-year rates are pushing more borrowers to look at ARMs for lower initial payments. At the same time, the 6.85% 30-year rate and 2.7% fall in total mortgage applications show that higher borrowing costs continue to weigh on the U.S. housing market.