mortgage demand dropped again last week as rates climbed higher but one type of loan is attracting borrowers adjustablerate mortgages or arms which offer lower rates are seeing renewed demand after getting very little interest over the last decade total mortgage application volume dropped 2 last week compared with the previous week according to the mortgage bankers associations seasonally adjusted index a consequence of surging rates the average contract interest rate for 30year fixedrate mortgages with conforming loan balances 647200 or less increased to 681 from 675 with points increasing to 097 from 095 including the origination fee for loans with a 20 down payment that is the highest rate since 2006 the news that job growth and wage growth continued in september is positive for the housing market as higher incomes support housing demand however it also pushed off the possibility of any nearterm pivot from the federal reserve on its plans for additional rate hikes wrote michael fratantoni mbas chief economist in a release the average rate for 51 arms which has a fixed rate for the first five years increased slightly but was still lower at 556 the arm share of applications was just under 12 when rates were lower at the start of this year that share was barely 3 where it had been for several years arms can be fixed for up to 10 years but they are considered riskier loans because the rate eventually adjusts to the market rate rates have been so low for so long that before rates started to rise borrowers didnt need to take on that additional risk higher overall rates crushed refinance demand even further with applications off 2 for the week and 86 from the yearearlier week at this rate level there are barely 150000 borrowers who can benefit from a refinance because so many people already have loans at far lower rates according to black knight a mortgage technology and analytics firm mortgage applications to purchase a home which fell 2 for the week were 39 lower than a year ago buyers have stepped way back this fall as higher rates have made affordability even worse home prices are starting to ease but potential buyers also are concerned that if they buy now their new home may drop in value in the coming year concerns over a recession also have buyers wary of making such a big investment mortgage rates moved even higher to start this week another survey from mortgage news daily has the 30year fixed now well over 7 all eyes are now on the latest inflation report set to be released on thursday it could move rates decidedly in either direction