An aerial view of the subdivision that has replaced the once rural landscape of Hawthorn Woods, Illinois.
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When mortgage rates rise, consumers look for ways to lower their monthly payments, which often results in them taking out adjustable-rate mortgages. These loans offer lower interest rates than fixed-rate loans, but are considered riskier. It can be fixed for up to 10 years, but will eventually adjust to an unknown future market rate.
Last week, ARM applications rose to 7.8% of mortgage demand, according to the Mortgage Bankers Association. This is the highest level this year. When mortgage rates hit record lows in 2021, the application share for ARMs was in the 3% range.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased from 7.24% last week to 7.29% last week, and loan points decreased from 0.66 (including origination fees) to 0.65 did. 20% down payment required. Meanwhile, the average contract interest rate for 5/1 ARMs fell from 6.64% to 6.60%.
“Inflation remains high, and this trend has convinced the market that interest rates, including mortgage rates, will remain high for a long time to come. With 30-year fixed mortgage rates rising, this is a sign that the housing market will “It’s definitely a headwind for the mortgage market, which rose to 7.29% last week, the highest level since November 2023,” said Mike Fratantoni, MBA senior vice president and chief economist.
Overall mortgage demand fell 2.3% last week compared to the previous week, according to MBA’s seasonally adjusted index.
Mortgage refinance applications fell 3% for the week, and were down 1% from the same week last year. With interest rates 79 basis points higher than a year ago, homeowners have little incentive to refinance. Those who want to tap into home equity are more likely to do so through a second loan or line of credit, rather than forgoing the current low interest rates.
Applications from prospective homebuyers fell by 2% this week, and were down 14% from the same week last year.
Mortgage rates rose further earlier this week and are likely to rise or fall further, depending on the Federal Reserve’s interest rate commentary when it closes on Wednesday.
