The rate on 30-year fixed-rate mortgages has fallen to 6.17%, a new low for the year. This decline is largely influenced by investor expectations of future Federal Reserve rate cuts, as a weakening job market is seen as a greater concern than inflation.
Refinancing Surge
Homeowners have responded to the lower rates in a big way. Mortgage refinance applications surged by 58% last week compared to the prior week and were up 70% year-over-year. Nearly 60% of all mortgage applications were for refinances. The average refinance loan size reached a record high of $461,300, the highest in the 35-year history of the Mortgage Bankers Association's survey.
High Demand for Purchase Mortgages
Requests for purchase mortgages have increased for the second consecutive week, rising 3% week-over-week and 20% year-over-year. The average loan request was $438,100, and the purchase loan applications index reached its second-highest reading of the year at 174.0.
ARMs on the Rise:
The share of adjustable-rate mortgage (ARM) applications is at its highest since 2008, accounting for 12.9% of all loan requests. Borrowers are opting for ARMs to take advantage of rates that are about 75 basis points lower than fixed-rate loans.
- The average conventional ARM loan request was a substantial $1.13 million.
- The average government-backed FHA and VA ARM loan request was $332,500.
ARM loan rates are typically tied to the Secured Overnight Financing Rate (SOFR), which is an interest rate benchmark based on the cost of borrowing cash overnight collateralized by U.S. Treasury securities. This makes ARM rates sensitive to changes in broader financial market conditions.
Federal Reserve Action
The Federal Reserve recently cut the federal funds rate by 25 basis points, setting a new target range of 4.00%-4.25%. This is the first rate cut since December 2024, and the FOMC has indicated the possibility of more cuts to come. This action is a key driver behind the recent drop in mortgage rates.
Federal Reserve and Economic Factors
Fed's Influence on Mortgage Rates: While the Federal Reserve does not directly set mortgage rates, its decisions on the federal funds rate and its overall economic outlook heavily influence them. Mortgage rates tend to follow the yields on long-term bonds, such as the 10-year Treasury note.
Weakening Job Market and Rate Cuts: A key driver behind the recent drop in mortgage rates is a weakening job market. The Fed has a dual mandate to maintain stable prices and maximum employment. When the jobs market weakens, the Fed may lower interest rates to stimulate economic activity. This is what investors have priced into mortgage-backed securities, leading to lower rates.
The Inflation Factor: The Fed's decision-making is a balancing act between a weakening job market and persistent inflation. In late 2024, mortgage rates moved in the opposite direction of Fed rate cuts as inflation flared up again, with the 30-year fixed rate hitting a 2025 high of 7.05% on January 14. This highlights that while Fed cuts can be a catalyst for lower mortgage rates, they are not a guaranteed outcome, as broader economic conditions and investor sentiment play a crucial role.
This summary was generated by an AI tool and reviewed by the editor.
9/17/2025 Mortgage Rates
- 30-year fixed: 6.13%
- 20-year fixed: 5.52%
- 15-year fixed: 5.41%
- 5/1 ARM: 6.66%
- 7/1 ARM: 6.62%
- 30-year VA: 5.73%
- 15-year VA: 5.22%
- 5/1 VA: 5.88%
Current mortgage rates, according to the latest Zillow data
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