As mortgage rates for traditional 30-year fixed-rate loans reached a near three-year high last week, buyers are increasingly turning to adjustable-rate mortgage (ARM) applications to reduce their monthly costs. Economists have watched the ARM share of overall applications climb to one-year high of 10.5% in recent weeks, driven by introductory rates that sit almost a full percentage point below the standard 30-year benchmark.
The latest Market Composite Index from the Mortgage Bankers Association (MBA)—its measure of mortgage loan activity volume and includes purchases and refinances—shows mortgage application activity decreasing 2.7% on a seasonally adjusted basis after last week’s 4.2% decrease. On an unadjusted basis, the Index decreased 2% compared with the previous week.
The ongoing decline comes as the average 30-year mortgage rate tracked at 7.40% this past week, according to Freddie Mac and this week currently sits at 7.56%, according to Mortgage News Daily. Freddie Mac’s next rate report will be released Thursday.
Mortgage Bankers Association Vice President and Deputy Chief Economist Joel Kan has been tracking an increasing number of ARM applications in recent weeks as traditional mortgage rates sail higher and higher.
“Mortgage applications decreased as rates moved higher last week,” Kan said in a statement. “The 30-year fixed rate was 7.5 percent, the highest rate since November 2023 and more than a percentage point higher than a year ago. As a result, borrowers continue to rely more on ARM loans to help lower their monthly payments. The ARM share at 10.5 percent was at its highest level since October 2025.
An ARM loan is where the interest rate is fixed for an initial period, typically five years, and then changes annually for the life of the loan, based on market conditions.
MBA’s Refinance Index saw a 0.4% decrease from the previous week and was again 56% lower than the same week one year ago. MBA’s seasonally adjusted Purchase Index–its weekly measurement of nationwide home loan applications based on a sample of about 75% of U.S. mortgage activity–decreased 4% from one week earlier. The unadjusted Purchase Index decreased 4% compared with the previous week and was 16% lower than the same week one year ago, according to the report.
The refinance share of mortgage activity saw an increase this week–to 37.7% from 37.0% the previous week, MBA reported.
“Last week’s decrease in refinances was mainly driven by a 5 percent drop in FHA refinance applications,” Kan stated.
As Kan also noted, the adjustable-rate mortgage (ARM) share of activity increased from 10.3% to 10.5% of total applications. MBA’s report showed the average interest rate for 5/1 ARMs increased this week from the previous week but was still almost 1% lower than the 30-year, landing at 6.54%, a 0.86% rate spread to be exact.
Using this week’s numbers, on a $400,000 home loan, that difference saves the borrower about $230 a month on their monthly mortgage payment, and over the five-year-fixed phase, almost $14,000.
A quick look at government-backed loans this week shows the FHA share of total applications unchanged at 16.4%. The VA share of total applications increased to 11.9% from 11.8% the week prior, and the USDA share of total applications increased to 0.6% from 0.5% the week prior.
To view the full report, click here.
