In an aerial view, two-story single family homes line the streets on Jan. 14, 2026 in Thousand Oaks, California.
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Mortgage Rates Rise Sharply, Halting Refinance Surge
Mortgage rates increased last week to their highest level since the end of 2025, reversing a recent trend of growing refinance activity. According to the Mortgage Bankers Association’s (MBA) seasonally adjusted index, total mortgage application volume fell 10.9% compared with the previous week.
The average contract interest rate for a 30-year fixed-rate mortgage with a conforming loan balance (jumbo loans excluded, in this case $832,750 or less) rose to 6.30% from 6.19%. For loans with a 20% down payment, points increased to 0.63 from 0.58, which includes the origination fee.
“Mortgage rates continued to move higher, driven by increasing Treasury yields as the conflict in the Middle East kept oil prices elevated, along with the risk of a broader inflationary shock. Mortgage rates increased across the board,” said Joel Kan, an MBA economist, in the association’s release.
Refinance Demand Drops After Weeks of Gains
The impact was most pronounced in the refinance market. Applications to refinance a home loan plunged 19% week to week. Despite this sharp weekly decline, refinance activity remained significantly higher—69% above the level seen during the same week one year ago, when rates were substantially higher.
“Rates were around 20 basis points higher than they were two weeks ago, and this caused a reversal in refinance activity, particularly for conventional refinance applications, which decreased 27 percent over the week. Government refinances also declined but by 5 percent, as FHA rates have not increased quite as rapidly,” Kan added, highlighting the differential impact on loan types.
Home Purchase Applications Show Resilience
While refinance demand cooled, applications for mortgages to purchase a home managed a modest 1% gain for the week. More notably, purchase activity was 12% higher than during the same week in January 2025. This resilience comes as the official spring homebuying season begins, a period traditionally marked by increased inventory and buyer competition.
The market enters this key season with slightly more available homes than a year ago, and a crucial affordability factor remains more favorable: mortgage rates are still approximately 42 basis points lower than they were in January 2025. Additionally, home price growth has moderated, with prices now declining in some major markets and flattening in others compared to the previous spring, further supporting purchasing power.
Market Eyes Federal Reserve Meeting and Geopolitical Factors
To start the current week, mortgage rates moved slightly lower according to a separate survey from Mortgage News Daily. However, attention is now focused on the Federal Reserve’s upcoming policy meeting. While most analysts do not expect a rate cut at the Wednesday decision, the accompanying commentary from Fed Chairman Jerome Powell can significantly influence bond markets and, by extension, mortgage rates.
“Fed days can still cause volatility in rates, for better or worse. In [Wednesday’s] case, any impact from the Fed should be smaller than it otherwise would have been due to the market’s preoccupation with geopolitical influences,” wrote Matthew Graham, chief operating officer at Mortgage News Daily, noting the overriding effect of international tensions on the economic outlook.
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