Even more borrowers choose riskier mortgages, as higher interest rates crush affordability

Mortgage rates moved to the highest level in nearly three years last week, causing overall demand to drop. Riskier mortgages, however, continue to gain a growing share of what demand there is. Total mortgage application volume dropped 2.75 last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. It is also 37.5% lower than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $832,750 or less, increased to 7.50% from 7.49%, with points decreasing to 0.83 from 0.84, including the origination fee, for loans with a 20% down payment. The rate was more than a full percentage point higher than it was a year ago.