Borrowers are shifting toward adjustable-rate mortgages as fixed mortgage rates climb to their highest level in more than a year, according to CNBC.
ARMs accounted for 8.5% of all mortgage applications last week, their highest share since June and a rise from 8% the prior week, according to the Mortgage Bankers Association. To put that in context, ARM demand sat at just around 3% during the pandemic's opening years, a period when fixed mortgage rates bottomed out at record levels.
The appeal of ARMs lies in their lower initial rates. The average rate on a 5-year ARM fell to 5.82% last week from 5.94% the week before. Over the same period, the average contract interest rate on a 30-year fixed-rate mortgage for conforming loan balances — $832,750 or less — climbed to 6.85% from 6.79%; points moved up to 0.67 from 0.65 on loans with a 20% down payment, origination fee included.
"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," Joel Kan, MBA's vice president and deputy chief economist, said in a statement.
That rate pressure translated into a 2.7% weekly decline in total mortgage application volume on a seasonally adjusted basis, the MBA said. Refinance applications led the decline, retreating 6% over the week and landing 25% under year-ago levels, a pace not seen since May 2025. Applications to buy a home were nearly unchanged, edging down 0.2% week over week while still tracking 4% ahead of the same period last year.