An aerial view shows a subdivision that has replaced the once rural landscape in Hawthorn Woods, Illinois.
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%.
Demand for riskier adjustable-rate mortgages hits highest level of the year
