At These Rates, Mortgages Are Now a Much Tougher Sell

People are definitely starting to notice the recent spike in mortgage rates. 

A Mortgage Bankers Association index measuring the volume of U.S. mortgage applications, both for refinancing and buying a home, dropped 8.3% last week, reaching its lowest level since 2018, data released Wednesday shows. The average rate on a 30-year fixed mortgage is now 5.37%, according to the MBA’s measure, the highest it’s been since 2009.

While higher rates have made refinancing a home loan less appealing for months, purchase applications have started to take a more noticeable hit, as the soaring cost of home ownership drives potential buyers out of the market. The fading interest has taken a toll on the mortgage industry too—lenders including Wells Fargo, Rocket Mortgage, and Better.com have reportedly laid off or offered to buy out employees.

Increasingly, borrowers are opting to take out adjustable-rate mortgages, which offer the possibility of more favorable terms in the future if rates decline (and the risk of worse ones if they keep going up.) The percentage of applications for mortgages with adjustable rates has doubled to more than 9% over the last three months, the MBA said.

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