Mortgage rates won’t be on the high end forever, and more borrowers are switching to adjustable-rate mortgages (ARMs) for just that reason.
Despite the fact that loan application volume is down overall, the share of ARMs has risen to its highest level so far this year, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Application Survey.
The MBA’s Market Composite Index, a measure of loan application volume, decreased 2.35% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 1.4% compared with the previous week.
The Refinance Index decreased 3% from the previous week and was 1% lower year-over-year.
In terms of application share, refinancing accounted for 30.2% of total mortgage applications, down from 30.8% the previous week.
“Inflation remains stubbornly high, and this trend is convincing markets that rates, including mortgage rates, are going to stay higher for longer,” MBA’s SVP and Chief Economist Mike Fratantoni commented. “No doubt, this is a headwind for the housing and mortgage markets, with the 30-year fixed mortgage rate increasing to 7.29 percent last week, the highest level since November 2023. Application volume for both purchases and refinances declined over the week and remain well below last year’s pace.”
Fratantoni went on to note that the share of ARM applications reached 7.8%, its highest level for the year thus far.
“Prospective homebuyers are looking for ways to improve affordability, and switching to an ARM is one means of doing that, with ARM rates in the mid-six percent range for loans with an initial fixed period of five years,” he said.
Just as the 7.29% average interest rate for 30-year conforming fixed-rate mortgages (FRM) rose five basis points higher than the prior week, the rate for 5/1 adjustable-rate mortgages (ARMs) decreased to 6.60% from 6.64%.
The survey also found that the size of home loans trended lower for the fifth straight week at an average of $375,200, down from $381,900.
The shares of FHA, VA, and USDA loan applications barely moved week-over-week, if only by a percentage point.
