Homeowners facing a stark choice: refinance now at steep rates or stay put. With average mortgage rates jumping to 7.49% last week from 7.30% the week before, refinance applications fell 8% weekly and have collapsed to less than half their pace from a year ago, according to the Mortgage Bankers Association.
The surge matters because refinancing is how millions of homeowners lower their monthly payments or tap home equity for major expenses. As rates climb, fewer borrowers benefit from refinancing, trapping those with older, lower-rate mortgages in place. The economics have shifted dramatically: rates are roughly a percentage point higher than a year ago, making refinancing pointless for most households already locked into better terms.
Mortgage applications to purchase homes also declined, dropping 2% for the week and 15% compared to the same week last year. Higher rates add pressure on an already strained affordability crisis. Some borrowers are turning to adjustable-rate mortgages (ARMs), which offer lower initial payments but can rise after their fixed terms end. The ARM share of applications held steady at 10.3% last week—far higher than the less than 3% seen in the early pandemic years when rates were near record lows.
The Federal Reserve raised interest rates in September and signaled another hike could come this year. Rates are expected to continue moving up as the Fed attempts to cool inflation and slow consumer spending.