Mortgage applications plummeted last week as interest rates reached their highest level since February, with borrowers opting for riskier adjustable-rate loans to lower their monthly payments.
The Mortgage Bankers Association reported an 8.5% drop in total mortgage application volume compared to the previous week. However, demand from buyers remains uncertain due to economic uncertainty and volatility in interest rates.
According to Mike Fratantoni, senior vice president and chief economist at the MBA, borrowers are increasingly choosing adjustable-rate mortgages with lower initial rates. The ARM share jumped 9.6% last week, the highest since November 2023, with almost a quarter of application volume going towards ARMs.
Refinancing applications also declined by 12% last week, but were 68% higher than the same period last year when rates were 32 basis points lower. Despite a temporary drop in interest rates this week, experts warn that more volatility is likely to come and advise caution.
The increased risk of adjustable-rate loans due to their shorter fixed term and potential for higher adjustments makes them an attractive option for borrowers looking to lower their monthly payments. However, the surge in ARM applications suggests that buyers may be taking on more risk than they anticipated.
Source: https://www.cnbc.com/2025/04/16/homebuyers-rush-to-riskier-loans-as-tariff-turmoil-pushes-interest-rates-higher.html