ARM Rush Pushes Mortgage Applications Up

Mortgage applications rose slightly last week, driven by an increase in adjustable-rate applications.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – increased by 0.6%.

Mortgage rates shot up for all loan types but adjustable-rate mortgages, leading to a rush on these loans, which boosted overall volume.

ARM applications jumped by 15% in just one week, pushing them to a 9.2% share of all applications, their highest level since November 2022.

Adjusted purchase applications inched up 1%, while the unadjusted index rose by 1% from the week before and was 19% lower YOY.

“The yield curve has become less inverted in recent weeks and ARM pricing has certainly improved,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

ARMs are attractive to borrowers hoping to save on their monthly payments.

While the 30-year fixed rate hit 7.67% – its highest level since 2000 and a shocking 40 bps higher than just one month ago – the average contract interest rate for 5/1 ARMs decreased to 6.33% from 6.49%.

But ARMs helped contribute to the 2008 crash when a lack of regulation left many homeowners stuck in financial distress they didn’t predict.

Though fewer ARMs are being issued now than then, an increase may be cause for concern.

“I am not big on ARMS,” Matt Abraham of Homestar Financial told TMN. “I have been doing this for 24 years and people’s living situation can be unpredictable. Even though there are the best intentions of exiting an ARM, sometimes it just doesn’t work out that way.”

Abraham said there are people an ARM is good for, but if borrowers plan to get in it is key to plan to get out.

“If you definitely know you are exiting a property, an ARM can be a good thing. Military people are a good example of someone who will be relocating in a few years. That sort of example, an ARM could be a good thing to go with,” Abraham said.

The jumbo rate hit another series high, jumping from 7.51% to 7.70%.

This is the highest rate ever recorded in MBA’s jumbo series, breaking last week’s record.

Refinances saw a 0.3% increase and accounted for 31.6% of total applications. In the past decade, refis averaged 58% of total activity.

The FHA share of total applications fell to 14.4% from 14.5%, with their interest rate rising to 7.40% from 7.29%.

The VA’s share increased to 10.2% from 10.1%, while the USDA’s share remained unchanged at 0.5%.