Even more borrowers choose riskier mortgages, as higher interest rates crush affordability
Interest rates on mortgages continue to rise, leaving some buyers to choose riskier, adjustable-rate mortgages to find savings.
Key points
- Mortgage rates hit nearly three-year high, cutting total application volume 2.7% last week.
- Adjustable-rate mortgages reached 10.5% of applications, the highest share since October 2025.
- Refinance applications fell 56% year over year; purchase applications dropped 16%.
Mortgage rates climbed to their highest level in nearly three years last week, pushing overall demand lower while riskier loans take a larger share of remaining applications. Total mortgage application volume fell 2.7% from the prior week and was 37.5% below the same week a year earlier, according to the Mortgage Bankers Association's seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming balances of $832,750 or less rose to 7.50% from 7.49%, with points easing to 0.83 from 0.84, including the origination fee, for loans with a 20% down payment. That rate was more than a full percentage point higher than a year ago.
Adjustable-rate mortgages gain share
Borrowers are increasingly turning to adjustable-rate mortgages to reduce monthly payments. Joel Kan, an MBA economist, said in a release that "the ARM share at 10.5 percent was at its highest level since October 2025."
ARMs carry lower initial interest rates and can be fixed for up to 10 years, after which they adjust based on future rates, which is why they are viewed as riskier.
The ARM share at 10.5 percent was at its highest level since October 2025.
— Joel Kan, MBA economist
Refinance and purchase demand
Refinance applications, hit hardest by higher rates, slipped 0.4% for the week and were 56% lower than a year earlier. Purchase applications fell 4% weekly and were 16% below the same week last year.
More homes are available for sale, mostly at the higher end, and supply is rising due to slower sales rather than new listings, while home prices continue to increase. Closed home sales rose slightly in September from August, based on summer market conditions when rates were lower.
Lawrence Yun, NAR's chief economist, said in a release that "August and September marked the two slowest months for home sales this year" and that recent rate increases mean fewer buyers can qualify.
