As mortgage rates hover near the highest level in over two decades, homebuyers are turning to riskier mortgage products to help them get into a home.

Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.86% from 7.90%, with points decreasing to 0.73 from 0.77 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association. That is still 80 basis points higher than the same week one year ago.

Adjustable-rate mortgages, which are considered riskier because the rates are fixed for shorter terms, offer savings. The average contract interest rate for 5/1 ARMs decreased to 6.77% last week.

“As higher rates continue to impact affordability and purchasing power, ARM loans increased almost 10 percent last week and continued to gain share, growing to 10.7 percent of all applications,” said Joel Kan, an MBA economist.

The ARM share of mortgage applications is now at the highest level in nearly a year.

Overall, mortgage demand, however, continues to slide lower. Applications to refinance a home loan fell 4% for the week, seasonally adjusted, and were 12% lower than the same week one year ago.

Applications for a mortgage to purchase a home fell 1% for the week and were 22% lower year over year.

“The impact of higher rates continued to be felt across both purchase and refinance markets. Purchase applications decreased to their lowest level since 1995 and refinance applications to the lowest level since January 2023,” Kan added.

Markets now await news from the Federal Reserve on Wednesday to see if there will be any relief from higher interest rates.