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Last week observed a decline in the volume of mortgage applications, largely influenced by a significant reduction in refinancing activities. This downturn occurred despite the overall stability of mortgage interest rates. A notable trend emerging from this period is the increasing appeal of adjustable-rate mortgages (ARMs), indicating a strategic shift in borrower behavior as they seek out more adaptable financing solutions in response to prevailing market conditions.

Mortgage Application Figures Drop as Borrowers Favor Adjustable-Rate Options

Data released on October 3, 2025, by the Mortgage Bankers Association (MBA) revealed a 4.7% dip in overall mortgage applications compared to the preceding week. This decline was more pronounced in refinancing, which fell by 8%, even as fixed-rate mortgage interest rates remained largely unchanged. However, refinancing activity still showed an 18% increase when compared to the same period a year ago, accounting for 53.3% of all applications, a slight decrease from the previous week's 55.0%.

Conversely, the seasonally adjusted index for home purchase applications experienced a modest 1% reduction from the prior week. On an unadjusted basis, this figure also dropped by 1% week-over-week, yet it stood 14% higher than the previous year. Mike Fratantoni, MBA's Senior Vice President and Chief Economist, noted that while fixed-rate loan applications for refinancing generally decreased, there was a slight uptick in FHA refinance applications. He also highlighted consistent growth in purchase activity year-over-year, particularly for FHA loans, which are popular among first-time homebuyers.

A significant development was the rise in the share of adjustable-rate mortgages (ARMs) to 9.5% from 8.4% the week before. Fratantoni attributed this to the substantial difference in interest rates, with 5/1 ARMs averaging almost a full percentage point lower than 30-year fixed rates. This differential is prompting more prospective homeowners and those looking to refinance to consider ARMs.

Furthermore, the Federal Housing Administration (FHA) increased its share of total applications to 18.5% from 16.8%, and the U.S. Department of Veterans Affairs (VA) saw its share grow slightly to 16.3% from 16.2%. The U.S. Department of Agriculture (USDA) maintained its share at 0.4%.

Regarding interest rates, the average contract rate for 30-year fixed-rate conforming mortgages fell to 6.43% from 6.46%. Jumbo loan rates, however, increased to 6.60% from 6.54%. Rates for 30-year fixed-rate FHA-backed mortgages decreased to 6.19% from 6.24%, while 15-year fixed-rate mortgages rose to 5.77% from 5.76%. The average contract interest rate for 5/1 ARMs saw a notable drop to 5.49% from 5.74%.

This report underscores a dynamic mortgage market where borrowers are actively seeking advantageous terms. The growing preference for adjustable-rate mortgages suggests that consumers are becoming more sophisticated in their financial decisions, weighing initial savings against future rate fluctuations. For lenders, this indicates a need for diverse product offerings and clear communication about the long-term implications of various loan types. Ultimately, understanding these shifts is crucial for both market participants and policymakers to ensure a healthy and responsive housing finance ecosystem.