Homebuyers Shift to Riskier Mortgages as Interest Rates Rise

Mortgage applications dipped this past week as rising interest rates and persistent market pressures kept some buyers out of the market and pushed others toward riskier loan structures.

For the week ending Sept. 4, the Mortgage Bankers Association's Market Composite Index—a measure of total mortgage loan application volume—fell 2.7% on a seasonally adjusted basis from the previous week.

“Higher mortgage rates continue to weigh on prospective homebuyers looking to act, even as housing inventory has increased in many markets,” said Joel Kan, MBA’s vice president and deputy chief economist

Meanwhile, the Purchase Index, a leading indicator for home sales, decreased 0.2% week over week on a seasonally adjusted basis, and was down 4% from a year earlier. Refinance activity fell 6% week over week and was down 25% year over year.

The mortgage application slowdown corresponds with rising interest rates. This week, MBA says 30-year fixed rate hit 6.85%, up from 6.79%, the highest since June 2025 and 36 basis points higher than a year ago. Thirty-year jumbo loans have climbed to 7.08%, the highest they've been since July 2024.

These rates have pushed a growing number of buyers toward riskier adjustable-rate mortgages, Kan said.

Adjustable-rate mortgages (ARMs) are considered riskier because monthly payments can vary sharply after the initial low-interest-rate period ends. Maturing ARMs were widely blamed for the 2008 housing bust and subsequent recession.

"Purchase applications overall were little changed from last week, but more borrowers have shifted to using ARM loans, with the ARM share of applications at 8.5%, the highest share since June," Kan said. "Higher mortgage rates continue to weigh on prospective homebuyers looking to act, even as housing inventory has increased in many markets."

As 30-year-fixed rates climbed, ARM rates fell to 5.82% from 5.94% last week.

How mortgage rates are calculated

Mortgage rates are calculated based on various factors in the economy, and the length of your loan and credit score will also factor into the mortgage rate you qualify for.

The 30-year mortgage rate is tied to the yield of the 10-year Treasury note, because most 30-year mortgages are either paid off or refinanced in roughly eight to 11 years.

That makes the duration on the loans roughly comparable, and mortgage lenders use the 10-year Treasury as a benchmark for setting rates, adding on a risk premium.

Long-term yields for Treasury notes are determined by a number of factors, including the supply of and demand for U.S. government debt, and investor expectations for inflation over the life of the bonds.