Last week, the mortgage rates in the United States dropped to the lowest level since October last year, sparking a massive wave of refinancing frenzy. This trend is driven by consumers hoping to save more money in the uncertain economic environment.
According to data released by the Mortgage Bankers Association (MBA) on Wednesday, the MBA’s seasonally adjusted Purchase Mortgage Refinance Index increased by 58% compared to the previous week and by 70% compared to the same week last year. Refinancing accounted for 59.8% of all mortgage activities, up from 48.8% the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (up to $806,500) decreased from 6.49% to 6.39% last week, and the points for 20% down payment loans decreased from 0.56 to 0.54 (including origination fees).
Refinancing applications for adjustable-rate mortgages (ARM) were particularly strong. The borrowing costs for ARM loans fluctuate with short-term interest rates. Last week, the share of ARM refinancing applications rose to 12.9% of all refinancing applications, the highest level since 2008.
The surge in demand is mainly driven by the significant decrease in mortgage costs, as the market generally expects the Federal Reserve to lower the target interest rates at its September policy meeting. This will not only directly impact short-term borrowing costs but also affect long-term interest rates, as investors anticipate borrowing costs to remain low for an extended period.
On Wednesday, the yield on 10-year US Treasury bonds dropped from a peak of around 4.8% at the beginning of 2025 to around 4.02%. Mortgage rates are tied to the 10-year Treasury yields.
Meanwhile, according to Freddie Mac’s data, the 30-year fixed mortgage rate decreased by 15 basis points to around 6.35% last week. The housing finance company stated that this was the largest weekly decline in a year.
Joel Kan, Deputy Chief Economist at the Mortgage Bankers Association, noted, “Driven by the decline in rates, this has been the strongest week of borrower demand since 2022, with both purchase and refi applications rising.”
Mike Fratantoni, Senior Vice President and Chief Economist at MBA, also commented, “Homeowners with larger loan balances are leading the way, and during this period, the average loan size for refinancing has reached the highest level in our 35-year survey history.”