Adjustable-Rate Mortgage Demand Surges as Fixed Rates Hit 14-Month Highs

Demand for adjustable-rate mortgages (ARMs) is on the rise, hitting its highest share since June, as the average 30-year fixed-rate mortgage climbed to 6.85% last week—a peak not seen since June 2025. This shift reflects ongoing investor concerns over inflation and the federal budget deficit, pushing borrowers towards alternative financing options.

What is driving the increase in ARM demand?

Borrowers are increasingly turning to ARMs as the gap between adjustable-rate and fixed-rate loans widens to its most significant point in years. ARMs accounted for 8.5% of all mortgage applications last week, up from 8% the prior week, according to Quartz and Joel Kan, the Mortgage Bankers Association's (MBA) vice president and deputy chief economist. This represents their highest share since June.

The average rate on a 5-year ARM fell to 5.82% last week from 5.94% the week before. For comparison, Zillow reported the 5-year adjustable-rate mortgage (ARM) refinance rate at 6.00% on September 9, 2026, while The Mortgage Reports indicated a 5/1 ARM Conventional averaged 6.335% on September 7, 2026. During the pandemic's opening years, when fixed mortgage rates were at record lows, ARM demand sat around 3%.

What are the current mortgage rates?

The average contract interest rate on a 30-year fixed-rate mortgage for conforming loan balances ($832,750 or less) climbed to 6.85% last week, up from 6.79% the week prior. This rate is 36 basis points higher than a year ago, as reported by Joel Kan of the MBA. Points on these loans also moved up to 0.67 from 0.65 for a 20% down payment, including origination fees.

Different sources provide slightly varied figures for fixed rates, reflecting varying methodologies or reporting dates. Freddie Mac reported the 30-year fixed-rate mortgage averaged 6.71% as of September 3, 2026. Mortgage News Daily (MND) reported the 30-year fixed mortgage rate at 6.89% on September 4 and 6.91% on September 2, noting its rates tend to be higher due to including standard up-front costs. Zillow reported the national average for a 30-year fixed refinance rate at 7.16% on September 9, 2026.

Historically, the 30-year fixed rate reached a record weekly low of 2.65% on January 7, 2021, and a record weekly high of 8.89% on December 16, 1994, according to Freddie Mac.

How is mortgage application volume affected?

Total mortgage application volume decreased by 2.7% weekly on a seasonally adjusted basis, according to MBA data cited by Quartz. Refinance applications saw a significant decline of 6% over the week and were 25% lower than year-ago levels, marking the slowest pace since May 2025.

Applications to buy a home were nearly unchanged, edging down 0.2% week over week, yet still tracking 4% ahead of the same period last year, according to MBA data. However, Homes.com News, also citing MBA data, reported a 3% decline in purchase applications for the same week.

Joel Kan stated that "Higher mortgage rates continue to weigh on prospective homebuyers looking to act, even as housing inventory has increased in many markets."

What factors are influencing mortgage rates?

Mortgage rates are climbing due to ongoing investor concerns over inflation and the federal budget deficit, Joel Kan noted. The 10-year Treasury yield has been steadily rising, from around 4.08% six months ago to about 4.77% as of September 9, according to Zillow. Oil prices climbing past $90-92 per barrel have also added pressure to inflation expectations. Nicole Rueth, Senior Vice President at CrossCountry Mortgage, stated, "Mortgage rates are taking their cues from oil tankers, not central bankers. Renewed fighting in Iran pushed oil prices and the 10-year Treasury yield higher, and mortgage rates followed, hitting their highest level in about a year, with the 30-year fixed around 6.7%."

What could happen next with mortgage rates?

The market is closely watching the Federal Reserve. The CME FedWatch tool estimates a 60.4% chance that the Federal Reserve will increase the federal funds rate by 0.25% at its meeting on September 15-16, 2026. This expectation is already contributing to climbing mortgage rates.

Expert forecasts vary for the near future. 83% of experts polled by Bankrate expect mortgage rates to increase in the week of September 3-9, 2026. Trading Economics projects the MBA 30-Yr Mortgage Rate to be 6.85% by the end of Q3 2026, trending around 7.05% in 2027 and 7.19% in 2028. Fannie Mae (March 10 forecast) and MBA (March 23 forecast) previously predicted 30-year fixed rates between 5.7% and 6.3% for Q4 2026 and Q1 2027, though these are noted as speculative due to market volatility.

Economic data will also play a crucial role. Nicole Rueth noted that Friday's jobs report and the Consumer Price Index (CPI) print on September 10 are key dates. She added that a "soft jobs number gives bonds room to ease," while a "hot one, and 7% stops being a headline and starts being your rate sheet." Matthew Graham, Chief Operating Officer for MND, wrote on September 2 that many borrowers are already seeing rates at 7% or higher. Corey Burr, senior vice president at TTR Sotheby's International Realty, stated he would be surprised if the national average 30-year fixed mortgage rate hit 7% but acknowledged the robust jobs number and rising oil prices could lead the FOMC to hike rates by 0.25% this month.