Rising Mortgage Rates Drive Borrowers Toward Riskier ARM Loans
Mortgage rates reached their highest level in nearly three years, pushing overall demand down and prompting more borrowers to opt for riskier adjustable-rate mortgages (ARMs). The average rate for a 30-year fixed mortgage with conforming loan balances rose slightly to 7.50%, up from 7.49% the previous week and over one percentage point higher than last year. As affordability declines, ARMs now account for 10.5% of demand—the highest share in nearly a year—offering lower initial rates but posing future risk due to potential rate adjustments. Refinance applications have plummeted by more than half compared to the same period one year ago as higher rates limit relief options for homeowners seeking better terms. Meanwhile, home purchase applications dropped 4% week-over-week and are down 16% from a year earlier despite an increase in available homes, particularly on the high end of the market. While closed sales rose slightly in August compared to July, this was based on lower rates during summer months. Experts warn that continued rate hikes will further reduce buyer eligibility for home purchases as affordability remains under pressure.
Topics: ARMs (Adjustable-Rate Mortgages) housing demand mortgage rates refinancing
Part of the story Mortgage Rates Decline for Second Consecutive Week Amid Shift Toward Adjustable-Rate Mortgages (6 articles)