Rising Mortgage Rates Push US Applications Down 4.2 Percent

Higher borrowing costs are weighing on the US housing market, with mortgage applications falling 4.2 percent in the week ending Oct. 2 as interest rates climbed to their highest levels in nearly three years. The Mortgage Bankers Association reported the decline in its seasonally adjusted survey, citing rising rates as a factor discouraging prospective homebuyers.

Freddie Mac reported an average weekly rate of 7.4 percent for a 30-year fixed-rate mortgage on Thursday, an increase of 0.12 percentage points from the previous week. The rate reached its highest level since November 2023, according to the mortgage finance company.

Refinancing activity weakened further as higher rates reduced the incentive for existing homeowners to replace their current loans. The Mortgage Bankers Association's refinancing index fell 8 percent from the previous week and stood 56 percent below its level during the same week a year earlier.

Joel Kan, the Mortgage Bankers Association's vice president and deputy chief economist, linked the slowdown to the recent increase in borrowing costs.

"Mortgage rates moved to their highest level in almost three years last week," Joel Kan, the association's vice president and deputy chief economist, said Wednesday, noting the jump "has caused many potential borrowers to step back from the purchase market."

Kan also said existing homeowners have limited motivation to refinance when new loans carry substantially higher rates. Meanwhile, some prospective buyers are turning to adjustable-rate mortgages to secure lower initial payments.

"have an incentive to refinance at these rates."

Adjustable-rate mortgages, commonly known as ARMs, accounted for just over 10 percent of all mortgage applications, according to the association. Realtor.com reported that the share had risen from 7 percent at the beginning of 2026, reaching its highest level in approximately a year.

For a mortgage with an initial fixed rate lasting five years before annual adjustments, the association reported an average rate of 6.43 percent for the week ending Oct. 2. That was more than one percentage point below the average rate for a 30-year fixed-rate mortgage.

Hannah Jones, a senior economist at Realtor.com, said the lower starting payments could make homeownership possible for buyers who cannot afford fixed-rate financing at current rates.

"Increasingly, it may simply be the only way some buyers can enter the market at all," Jones said.

Jones calculated that an adjustable-rate mortgage could reduce the monthly principal and interest payment by about $178 on a $400,000 home purchased with a 20 percent down payment, based on recent rates. However, the initial savings may diminish when the loan's interest rate begins adjusting.

Realtor.com reported that during the 2008 financial crisis, rate resets increased a typical borrower's monthly mortgage payment by nearly $580 in today's dollars. The historical experience highlights the potential cost of adjustable-rate financing when interest rates rise.

Jones said buyers considering these loans should evaluate whether their finances could withstand future payment increases, even if the initial monthly cost fits their budgets.

"Can your budget absorb a significant jump in your monthly mortgage payment?" she said. "If not, the ARM may not be the right product for you."