One industry analyst gives his thoughts on what interest rate will drive action in the market
The mortgage industry was buzzing a few weeks ago, after softer-than-expected jobs data set off a chain reaction that brought mortgage rates to 2025 lows. It led to a surge in activity as borrowers locked in some of those lower rates.
In the days since the Federal Reserve cut rates by 25 basis points, mortgage rates have climbed slowly from those year lows. It has left industry experts wondering: If a slight decline can spur the volume of activity that it did, what rate would lead to a wave of refinances and purchases?
Eric Hagen (pictured top) is the managing director and mortgage and specialty finance analyst at BTIG. He formerly served as an analyst at the US Department of the Treasury. He said for those sitting with low-rate mortgages from the post-pandemic rate crash, that magic number might not be too far away.
“We’re of the belief that folks would start to move and mobilize if rates were to come down a little bit more,” Hagen told Mortgage Professional America. “For these folks with 2.5% and 3% mortgage loans, we recognize and understand that rates need to come down to that level for them to be financially incentivized to refinance.”
Finding the magic number
It’s not just the refinance market looking for the sweet spot in mortgage rates. Many homeowners would like to make a move, but are hesitant to give up a low interest rate.
“At the same time, the housing market can move on more than just refi volume,” Hagen said. “There are a lot of folks who want to trade up. But they probably feel stuck, or they've told themselves that they're stuck because of their mortgage rate.”
So, what is that magic number that Hagen thinks will really get the market moving?
“We feel like if rates were to come down a little bit more,” he said. “Not down to 3% because that's not really realistic, but to 5% or 5.5%, there would be folks with a 3% loan that are like, ‘Okay, this is my opportunity to move, or to trade up or trade out.’ We do believe that's what would happen.”
Looking at hybrid ARMs
In the meantime, while rates remain above that magic number, Hagen said there has been an opportunity with hybrid adjustable-rate mortgages (ARMs) to get a lower rate in the meantime, while banking on rates to drop before the first adjustment.
“The other trend that we're looking at is hybrid ARMs,” he said. “The vast majority of loans that are originated are fixed rate, but we see more originators doing hybrid ARMs right now, because of everything we're talking about, like the long end of the curve is still relatively high. The Fed is bringing down short-end rates. So there's a compelling opportunity and a rational case for borrowers to do a hybrid ARM.”
Hagen believes the only thing that has slowed the use of hybrid ARMs is a memory of some of the loan types used before the 2008 housing crash. He said memories of that time have caused some to hesitate, but he said that was a different situation.
“We think the sticking point is the fact that in the last crisis, there was a misunderstanding,” Hagen said. “I think that is the best way to say it, around some of the innovative mortgage products that existed in the last financial crisis. And so getting folks to buy back into the ARM ideas could be a little challenging, but financially, from a math standpoint, it is an affordability product.
“For all these folks who took out a fixed rate mortgage at 6.5% or 7% over these last few years, that is an opportunity for them to refi into a 5/1 or 7/1 ARM.”
As Kimber White returns as president of the National Association of Mortgage Brokers, he aims to tackle housing affordability head-on. He calls for reforming loan-level price adjustments, which he says disadvantage working Americans and first-time buyers.https://t.co/vaws16k0cq
— Mortgage Professional America Magazine (@MPAMagazineUS) October 6, 2025
The biggest challenge for brokers is educating borrowers on the pros and cons of adjustable-rate mortgages. Since they disappeared when rates were very low, many newer homeowners may not be familiar with them.
“A lot of it is the marketing and the way it gets articulated from a broker to the borrower,” Hagen said. “There is more financial literacy associated with an adjustable-rate mortgage versus a fixed-rate loan. We haven't talked about hybrid ARMs at all in the last 10 years, so it's just interesting to hear this becoming more of the conversation. It's really interesting to see hybrid ARMs staging a little bit of a comeback.”
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