Mortgage applications drop 9.7% despite lower rates

Mortgage applications fell 9.7% from two weeks earlier, according to the Mortgage Bankers Association’s weekly survey for the week ending Jan. 2, 2026, despite a drop in interest rates to their lowest level since September 2024.

On an unadjusted basis, the index was down 28% compared with two weeks ago. The results include an adjustment for the holidays.

The refinance index, adjusted for holidays, fell 14% from two weeks earlier but was 133% higher than the same week a year ago. The unadjusted refinance index dropped 31% over the period and was 108% higher than a year earlier. Refinancing accounted for 56.6% of total mortgage activity, up from 53.8% the prior week.

The seasonally adjusted purchase index decreased 6% from two weeks earlier. The unadjusted purchase index decreased 23% compared with two weeks ago and was 10% higher than the same week one year ago.

“Mortgage rates started the New Year with a decline to 6.25%, the lowest level since September 2024. Refinance applications were up 7% for the week but were at a slower pace than in the weeks leading up to the holidays,” said Joel Kan, MBA’s vice president and deputy chief economist. “FHA refinance applications saw a 19% increase, although that was a partial rebound from a drop the week before. MBA continues to expect mortgage rates to stay around current levels, with spells of refinance opportunities in the weeks when rates move lower.”

Added Kan, “Purchase applications were 10% higher than the same week a year ago but were down over the week following decreases in conventional and FHA applications. The average loan size was $408,700, the smallest in a year, driven by lower average loan sizes across both conventional and government loan types.”

The adjustable-rate mortgage (ARM) share of activity decreased to 6.3% of total applications. By loan product, the Federal Housing Administration (FHA) share of total applications increased to 20.0% from 18.4% the week prior, and the U.S. Department of Veterans Affairs (VA) share of total applications increased to 17.3% from 16.3%. The U.S. Department of Agriculture (USDA) share of total applications increased to 0.4% from 0.3%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 6.25% from 6.32% and rates for 30-year fixed-rate mortgages with jumbo loan balances decreased to 6.32% from 6.46%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 6.09% from 6.15% and rates for 15-year fixed-rate mortgages decreased to 5.64% from 5.69%.

The average contract interest rate for 5/1 ARMs bucked the trend and increased to 5.90% from 5.61%.