Mortgage Applications Surge Near 30% as Rates Dive: How Does It Impact Monthly Payments?

Mortgage rates fell to their lowest levels in a year amid a faltering US labour market and traders pricing in a rate cut by the US Federal Reserve, which it did yesterday by 25 basis points to 4% to 4.25%.

The average interest rate of 30-year fixed-rate mortgages fell to 6.30% from 6.62% four weeks ago, while the rate notched down to 6.31% for the 30-year jumbo mortgages from 6.64% a month ago. The rate on the 15-year fixed-rate mortgage was down to 5.51% from 5.83% a month ago.

According to the Mortgage Bankers Association's weekly mortgage applications survey for the week ending 12th Sept., US mortgage applications surged by 29.7% from a week earlier. Meanwhile, the refinance portion of mortgage activity climbed to 59.8% of total applications from 48.8% the previous week. Furthermore, the adjustable-rate mortgage share of activity rose to 12.9% of all applications.

'Indicative of the weakening job market, and in anticipation of a rate cut from the Federal Reserve, mortgage rates last week dropped to their lowest level since last October, with the 30-year fixed rate declining to 6.39%. Homeowners responded swiftly, with refinance application volume jumping almost 60% compared to the prior week,' stated Mike Fratantoni, MBA's senior vice president and chief economist. 'Homeowners with larger loans jumped first, as the average loan size on refinances reached its highest level in the 35-year history of our survey. Almost 60% of applications were for refinances, but there was also a pickup in purchase applications.'

How Much Can Monthly Payments Change?

Let's consider the US Department of Housing and Urban Development data of the national median family income of $104,200 (£76,473) for 2025 and the median price of $422,400 (£310,000) for an existing home sold in July 2025. The monthly payment on a 6.30% mortgage rate comes to $2,080 (£1,526), considering a 20% down payment. That's about 24% of an average family's monthly income.

However, experts have diverging views that the low rates and the Fed rate cut could significantly improve affordability.

'While lower rates will bring some buyers and sellers into the market, today's cut will not be enough to break up the housing market logjam,' says Lisa Sturtevant, chief economist at Bright MLS. 'We will need to see further drops in mortgage rates and much slower home price growth, or even home price declines, to make a dent in affordability.'

However, Winston Trotter of Inclusive Wealth Management shares a different view. 'With the Fed cutting the rate, that should entail could potentially bring down the mortgage rates a little bit more,' Trotter said. 'Which will entice more buyers or people to go out there and apply for mortgage loans or mortgages to potentially buy new homes, and or refinance the mortgages that they're currently in.'

The US Fed chair, Jerome Powell, highlighted elevated inflation during a press conference on Wednesday afternoon. In case there's an uptick in inflation, it could lift mortgage rates.

'I do think that people are expecting a big impact from this,' said Nicole Stewart, a real estate agent with Redfin, referring to the Fed's rate cut this week. 'I've been trying to inform most of my buyers, as well as my sellers, that we've already seen the majority of what's going to happen.'