Mortgage Demand Surges to Three-Year High as Interest Rates Drop Sharply

Key Points

• The average 30-year fixed mortgage rate for loans of $806,500 or less fell to 6.49% from 6.64%.
• Refinance applications jumped 12% for the week, up 34% from the same period last year.
• Home purchase applications climbed 7% week-over-week and 23% higher than last year, reaching their highest level since July 2025.

SAN FRANCISCO, CALIFORNIA – After months of hesitation, homebuyers and existing homeowners are finally responding to falling mortgage interest rates. The latest figures from the Mortgage Bankers Association (MBA) show a sharp increase in both new mortgage applications and refinancing activity, signaling renewed energy in the housing market.

Total mortgage applications rose 9.2% last week compared with the prior week, after adjusting for the Labor Day holiday, marking the most active period for borrower demand since 2022. The uptick was driven by both declining interest rates and growing awareness among homeowners that refinancing could significantly reduce their monthly payments.

The average contract rate for a 30-year fixed mortgage with a conforming loan balance of $806,500 or less dropped to 6.49% from 6.64%, with points declining slightly to 0.56 from 0.59 for loans with a 20% down payment. Joel Kan, an economist at the MBA, noted that this rate represents the lowest level seen since October 2024. “As Treasury yields fell on data indicating a softening labor market, mortgage rates followed, prompting a surge in borrower activity,” Kan said.

Refinancing Activity Jumps

Refinance applications led the charge, climbing 12% for the week and rising 34% compared with the same week last year. The share of refinancing in total mortgage activity also increased, moving from 46.9% to 48.8%. Larger loan sizes drove much of the growth, as homeowners with bigger mortgages stand to benefit the most from lower monthly payments.

Although the 30-year fixed rate remains about 20 basis points higher than it was a year ago, it is significantly lower than earlier in 2025, particularly compared with May, traditionally the peak of the spring homebuying season. Analysts say this environment presents a rare opportunity for homeowners to refinance, lock in lower rates, and achieve substantial long-term savings.

Home Purchase Applications Also Rise

Demand for new home purchases also accelerated. Applications to buy a home climbed 7% week-over-week and 23% compared with the same period last year, marking the highest level of purchase activity since July. Adjustable-rate mortgages (ARMs) also saw increased interest, as their rates were noticeably lower than fixed-rate loans, giving homebuyers more flexibility and cost savings in today’s market.

“Borrowers are responding not just to lower rates, but to the broader trend of improving affordability,” said Kan. “This is creating a momentum in the housing market we haven’t seen in several years, with both first-time buyers and existing homeowners looking to take advantage.”

Looking Ahead

Mortgage rates ticked slightly higher at the start of this week, but economists warn that rates remain sensitive to upcoming inflation reports. The release of two key inflation datasets on Wednesday and Thursday is expected to influence market movements and could further shift mortgage rate trends.

For prospective buyers, the current environment represents a unique window to lock in historically favorable financing. Homeowners considering refinancing may find the combination of lower rates and larger loan balances particularly appealing, potentially freeing up cash for other investments or expenses.

As the labor market shows signs of softening, and with mortgage rates responding accordingly, analysts expect sustained activity in both the refinance and purchase markets for the remainder of the year. For now, the housing sector is experiencing a resurgence, signaling renewed confidence among borrowers and investors alike. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.