Demand for riskier adjustable-rate mortgages hits highest level of the year, due to rising rates

When
mortgage
rates
rise,
consumers
look
for
any
way
to
lower
their
monthly
payments,
and
that
often
leads
them
to
adjustable-rate
mortgages.
These
loans
offer
lower
interest
rates
than
their
fixed-rate
counterparts
but
are
considered
riskier.
While
they
can
be
fixed
for
up
to
10
years,
they
eventually
adjust
to
an
unknown
future
market
rate.

The
share
of
ARM
applications
rose
to
7.8%
of
mortgage
demand
last
week,
according
to
the
Mortgage
Bankers
Association.
That
is
the
highest
level
of
the
year.
When
mortgage
rates
hit
record
lows
in
2021,
the
ARM
share
of
applications
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
to
7.29%
last
week
from
7.24%
the
previous
week,
with
points
decreasing
to
0.65
from
0.66
(including
the
origination
fee)
for
loans
with
a
20%
down
payment.
Meanwhile,
the
average
contract
interest
rate
for
5/1
ARMs
fell
to
6.60%
from
6.64%.

“Inflation
remains
stubbornly
high,
and
this
trend
is
convincing
markets
that
rates,
including
mortgage
rates,
are
going
to
stay
higher
for
longer.
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,”
said
Mike
Fratantoni,
senior
vice
president
and
chief
economist
at
the
MBA.

Overall
mortgage
demand
dropped
2.3%
last
week
compared
with
the
previous
week,
according
to
the
MBA’s
seasonally
adjusted
index.

Applications
to
refinance
a
home
loan
fell
3%
for
the
week
and
were
1%
lower
than
the
same
week
one
year
ago.
With
rates
79
basis
points
higher
than
a
year
ago,
homeowners
have
little
incentive
to
refinance.
Those
wanting
to
take
out
home
equity
are
more
likely
to
do
that
through
a
second
loan
or
line
of
credit,
rather
than
give
up
their
current
low
rate.

Applications
from
potential
homebuyers
fell
2%
for
the
week
and
were
14%
lower
than
the
same
week
one
year
ago.

Mortgage
rates
rose
further
to
start
this
week
and
will
likely
make
a
more
significant
move,
higher
or
lower,
depending
on
interest
rate
commentary
from
the
Federal
Reserve,
which
ends
its
meeting
Wednesday.