Mortgage rates have surged to their highest levels since October 2025, significantly impacting both home purchase and refinancing applications. The sharp increase in borrowing costs, largely attributed to ongoing geopolitical tensions and their effect on energy prices and inflation expectations, has pushed potential buyers to the sidelines and cooled demand in the housing market.
In late March 2026, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances climbed to 6.43%. This marks a significant increase from previous weeks and represents the highest rate observed since October of the previous year. Points, which represent loan origination fees, also saw a slight rise. This upward trend in mortgage rates has been consistent for the past three weeks, with a total increase of 34 basis points, the most substantial jump since November 2024.
The surge in mortgage rates has had a direct and negative impact on demand for home loans. Overall mortgage application volume experienced a significant drop of 10.5% in the week ending March 20, according to data from the Mortgage Bankers Association. Refinancing applications, which had shown strength in recent months, fell by 15% for the week. Despite this decline, refinance activity remains 52% higher than the same week a year ago when rates were considerably higher.
Applications for purchasing a home also decreased, falling by 5% week-over-week. This slowdown is attributed to a combination of higher mortgage rates, existing affordability constraints in the housing market, and general economic uncertainty. Some potential homebuyers are reportedly delaying their decisions due to these challenging conditions.
The primary driver behind the elevated mortgage rates is the ongoing conflict in the Middle East and its ripple effects on the global economy. Disruptions to oil shipments from Iran have led to increased energy prices and heightened inflation expectations. Economists warn that even if the conflict were to de-escalate, the “second-round effects” on inflation and interest rates could persist for some time, preventing an immediate return to February’s lower rate environment.
Market reactions to news regarding troop deployments and de-escalation efforts have been swift, influencing Treasury yields, which in turn affect mortgage rates. The bond market remains sensitive to geopolitical developments, contributing to the volatility and upward pressure on borrowing costs.
As fixed-rate mortgages become less attractive due to higher costs, the share of adjustable-rate mortgages (ARMs) in total applications has increased to 8.1%. While ARMs typically offer lower initial rates, they come with the risk of future rate adjustments, making them a potentially more volatile option for borrowers.