U.S. mortgage rates continued their upward climb, with the average contract rate on a 30-year fixed mortgage rising to 6.85% — the highest level since June 2025 — pushing overall mortgage application volume lower for a second consecutive week. According to data released Wednesday by the Mortgage Bankers Association (MBA), total mortgage application volume fell 2.7% for the week ended September 4, following a 0.8% increase the prior week.
The rise in rates was primarily driven by mounting investor concerns over inflation and the widening federal budget deficit, compounded by escalating Middle East conflict that pushed crude oil prices higher and lifted U.S. Treasury yields. The average contract rate for a 30-year fixed mortgage with loan balances of $832,750 or less rose 6 basis points to 6.85% from 6.79% the prior week — the highest since June 2025 and 36 basis points higher than a year ago.
"Mortgage rates moved higher last week, driven by ongoing investor concerns about inflation and the federal budget deficit. The 30-year fixed rate increased to 6.85 percent, the highest since June 2025, and was 36 basis points higher than a year ago," said Joel Kan, MBA's Vice President and Deputy Chief Economist.
Refinance Demand Freezes as Adjustable-Rate Mortgages Gain Traction
The impact of rising rates was most pronounced in the refinance market. Refinance applications tumbled 6.2% for the week, falling to their slowest pace since May 2025 and down 25% compared with the same period a year earlier. Purchase mortgage applications, on a seasonally adjusted basis, slipped just 0.2% but remained 4% higher than a year ago.
Notably, borrowers are increasingly shifting toward riskier adjustable-rate mortgages (ARMs). The ARM share of total mortgage applications rose to 8.5% from 8% the prior week — the highest level since June. During the early pandemic period, when mortgage rates plunged to historic lows, ARM demand accounted for only about 3% of applications.
For example, the average rate on a 5-year ARM fell to 5.82% from 5.94% the prior week, widening the spread versus the 30-year fixed rate to more than 1 percentage point — a key factor drawing borrowers toward floating-rate products. ARMs offer lower initial rates and can lock in fixed terms for up to 10 years.
"Higher mortgage rates continue to dampen activity among prospective homebuyers who are ready to act, even as housing inventory has increased in many markets," Kan added.
Inflation Data Emerges as Key Near-Term Variable
According to a separate survey by Mortgage News Daily, mortgage rates held steady earlier this week. Investors are awaiting monthly inflation data due later this week, which could push mortgage rates sharply in either direction depending on the results.
Overall, mortgage rates have rebounded to the upper end of their one-year range, exerting dual pressure on the U.S. housing market: suppressing new purchase demand on one hand while bringing refinance activity to a near standstill on the other. If inflation data comes in hotter than expected, rates could climb further, posing a greater challenge to buyer momentum during the fall homebuying season. Conversely, if inflation cools, it could open a window for prospective buyers who have been waiting on the sidelines.
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