Drop in Mortgage Rates Sparks Surge in ARM Applications—Highest Level in Three Years

Mortgage application activity jumped sharply last week as interest rates pulled back, prompting more borrowers particularly those refinancing and exploring adjustable-rate options to enter the market.

According to the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association (MBA) for the week ending August 8, 2025, overall mortgage applications rose 10.9% compared to the previous week on a seasonally adjusted basis. Without seasonal adjustment, the increase came in at 10%.

The breakdown shows where the momentum is strongest:

• Refinance Index: Up 23% week-over-week, marking its most robust pace since April and 8% higher than the same week in 2024.
• Purchase Index: Up just 1% from the previous week on both adjusted and unadjusted bases. However, purchase applications were still 17% higher than one year ago, underscoring stronger buyer interest compared to 2024.

Rate Drop Fuels Refinance Rush

The 30-year fixed mortgage rate fell to 6.67% last week, and that was enough to ignite the strongest refinance activity we’ve seen in months, said Joel Kan, MBA’s VP and Deputy Chief Economist.

The shift was particularly notable among borrowers with larger loan amounts, who are generally more sensitive to rate changes. The average refinance loan size jumped to $366,400. Refinances made up 46.5% of all mortgage applications, up from 41.5% the prior week.

ARM Popularity Hits Highest Since 2022

One of the standout trends is the surge in adjustable-rate mortgage (ARM) applications. The ARM share climbed to 9.6% of all mortgage activity after a 25% increase in applications, marking its highest level in three years.

“Given the rate advantage ARMs currently hold over fixed-rate loans, more borrowers are taking a fresh look at them,” Kan explained. “They can be especially appealing for those who expect to sell or refinance within a few years, before the rate adjusts.”

Still, Kan cautioned that while refinancing demand is heating up, the dip in rates wasn’t quite enough to meaningfully lift purchase applications suggesting that affordability remains a barrier for many would-be buyers.

Loan Program Trends

The composition of mortgage activity also shifted slightly by loan type:

• FHA loans: Represented 18.4% of total applications, down slightly from 18.5% the previous week.
• VA loans: Rose to 14.2% from 13.3%, reflecting a nearly one-point gain in market share.
• USDA loans: Held steady at 0.5%.

Expert Insights

Freddie Mac Chief Economist Sam Khater emphasized the potential for savings when borrowers shop around.

Even small rate drops can increase purchasing power, Khater said. And our data shows that comparing offers from multiple lenders can save buyers thousands of dollars over the life of their loan.”

Lisa Sturtevant, Chief Economist for Bright MLS, noted that the broader rate environment could continue to improve if the Federal Reserve moves forward with a September rate cut.

We’re seeing rates edge lower as the market anticipates Fed action, she explained. “This could pull some buyers off the sidelines. But with national home prices hitting a record high in June, affordability challenges remain significant.

Rate Snapshot: Week Ending August 8, 2025

• 30-year fixed (conforming ≤ $806,500): Down to 6.67% from 6.77%; points increased to 0.64 from 0.59 (including origination fee) at 80% LTV.
• 30-year fixed (jumbo > $806,500): Up to 6.70% from 6.65%; points decreased to 0.56 from 0.59 at 80% LTV.
• 30-year fixed FHA: Down to 6.40% from 6.47%; points decreased to 0.77 from 0.81 at 80% LTV.
• 15-year fixed: Down to 5.93% from 6.03%; points decreased to 0.63 from 0.66 at 80% LTV, with an overall lower effective rate.
• 5/1 ARM: Down to 5.80% from 6.06%; points rose to 0.67 from 0.49 at 80% LTV.

Context and Outlook

MBA’s Weekly Mortgage Applications Survey, conducted since 1990, tracks closed-end residential mortgage applications from mortgage bankers, commercial banks, thrifts, and credit unions across retail and consumer-direct channels.

The latest figures paint a picture of a market in which rate-sensitive borrowers are making moves quickly, particularly those seeking refinances and ARM products. Yet, for many prospective homebuyers, price pressures are still an obstacle.

With the Fed possibly pivoting toward rate cuts in the fall, the coming months could bring more competitive borrowing costs but whether that’s enough to overcome historically high home prices remains to be seen. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.