Demand for mortgages slid again, with more borrowers eyeing ARMs for lower rates
United States mortgage application activity continued its downward slide last week, with both purchase and refinance demand retreating despite a modest dip in interest rates, according to the latest data from the Mortgage Bankers Association (MBA).
The MBA’s Weekly Mortgage Applications Survey for the week ending October 3, 2025, showed a 4.7% drop in the Market Composite Index, which tracks overall mortgage loan application volume. On an unadjusted basis, the index fell 5% from the previous week.
Refinance activity leads overall decline in mortgage demand
Refinance applications led the decline, dropping 8% week over week, though they remained 18% higher than the same period last year.
Purchase activity slipped by 1% but was still up 14% annually, reflecting a market where buyers remain cautious amid persistent affordability challenges and economic uncertainty.
“With mortgage rates on fixed-rate loans little changed last week, refinance application activity generally declined, with the exception of a modest increase for FHA refinance applications,” Mike Fratantoni, MBA’s senior vice president and chief economist, said.
“Refinance volume remains somewhat elevated relative to levels of a month ago. Purchase activity declined by about 1 percent for the week but continues to show moderate growth on an annual basis, and stronger growth for FHA loans, favored by first-time homebuyers,” Fratantoni said.
Borrowers shift to ARMs as fixed rates remain high
Adjustable-rate mortgages (ARMs) gained traction as borrowers sought relief from high fixed rates. The ARM share of activity rose to 9.5% from 8.4% the prior week.
“Our survey shows 5/1 ARM rates are averaging almost a percentage point below 30-year fixed rates, and this differential is leading more purchase and refinance applicants to consider ARMs,” Fratantoni said.
Interest rates for 30-year fixed-rate mortgages with conforming loan balances edged down to 6.43%, while jumbo loan rates ticked up to 6.60%. FHA-backed 30-year fixed rates fell to 6.19%.
The effective rates for both conforming and FHA loans decreased, but the average rate for 15-year fixed mortgages nudged higher to 5.77%. The 5/1 ARM rate dropped to 5.49%, further fueling borrower interest in adjustable products.
Affordability pressures force buyers and sellers to rethink strategies
While the supply of homes for sale has improved compared to last year, sellers are increasingly hesitant, with more delistings and delayed listings as buyers grapple with affordability and economic headwinds.
According to Bankrate’s 2025 Home Affordability Survey, 16% of Americans who set out to buy a home in the past five years have given up entirely, unable to find properties that fit their budgets or preferences.
“U.S. home affordability is at its worst level in decades,” Stephen Kates, a financial analyst at Bankrate, said.
“The punishing combination of high home prices, low supply and high mortgage rates has caused one in six home shoppers over the past five years to give up completely.”
Moreover, American households have been forced to make tough choices as persistent inflation continues to reshape spending habits, according to a new survey from TD Bank.
As inflation drives up the cost of essentials, Americans have less room in their budgets for housing expenses. This could dampen demand for home purchases and put upward pressure on mortgage delinquencies.
The MBA’s survey, which covers over 75% of all retail residential mortgage applications in the US, has tracked these shifting patterns since 1990.
The continued rise in ARM popularity signals a willingness among borrowers to accept more risk in exchange for immediate savings, a trend that could have long-term implications if rates rise further.
For lenders and industry professionals, the shift underscores the need to educate clients on the risks and rewards of adjustable-rate products, especially as the market remains volatile.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
