Housing News

Mortgage Interest Rates Climb as More Homebuyers Turn to Adjustable-Rate Loans

Mortgage interest rates rose this week. This prompted more borrowers to explore adjustable-rate mortgages (ARMs), which can offer lower initial monthly payments than traditional fixed-rate loans.

The average rate on a 30-year, fixed-rate mortgage climbed to 7.28% for the week ending Oct. 1, according to Freddie Mac. That was up from 7.03% the previous week and 6.34% at the same time last year.

“With mortgage rates on their current trajectory, the housing market continues to be supported by favorable economic conditions,” said Sam Khater, Freddie Mac’s chief economist, in a statement.

The 25-basis-point increase was the largest weekly jump since October 2022. This brought mortgage rates to their highest level in nearly three years.

A homebuyer purchasing a $400,000 home with 20% down would pay approximately $2,183 a month in principal and interest at this week’s average mortgage rate.

Meanwhile, more borrowers are considering alternative financing options to help manage their monthly payments.

Adjustable-rate mortgages accounted for 10.3% of all mortgage applications in the week ending Sept. 25, their highest share since October 2025, according to the Mortgage Bankers Association (MBA).

The average contract rate on a 5/1 ARM was 6.47%, compared with 7.30% for a 30-year, fixed-rate conforming mortgage, according to MBA. A 5/1 ARM has a fixed rate for the first five years of the loan and then the rate adjusts every year based on the current market, up to a certain cap.

There may also be some encouraging developments for homebuyers. Mortgage rates typically come down when the U.S. Federal Reserve indicates it is cutting its benchmark rate, which is different than mortgage rates. The Fed generally raises rates when inflation is high and lowers them when inflation falls. 

August’s core Personal Consumption Expenditures (PCE) inflation reading came in cooler than expected at 3%, according to Jones. Continued progress on inflation could help ease some of the pressure on mortgage rates.

Homebuyers heading into October may also find more opportunities to negotiate with sellers.

About 20.8% of listings had a price reduction in September, the highest share in four years, according to Realtor.com’s September housing report. Meanwhile, active listings were just 9.1% below pre-pandemic levels, the smallest gap yet.