Homeowners who recently refinanced saw the biggest improvement in their mortgage rate in decades
When mortgage rates fell to about 6% in August, homeowners jumped at the opportunity to refinance.
In September and October, more than 300,000 borrowers closed on refinances, including nearly 150,000 rate and term refinances, according to the latest ICE Mortgage Monitoring Report.
This has pushed refinancing volumes to their highest levels in more than two-and-a-half years.
More than a quarter of mortgage lending in October consisted of refinancings in a market long dominated by home equity loans.
Perhaps most interesting is that borrowers who refinanced in these months saw some of the biggest rate improvements in decades.
The average refinancing company gets a mortgage rate about 120 basis points lower
You’ve probably heard the phrase home marriage, price history. But if you haven’t, it was basically an argument to buy a home if you wanted to, and hope to refinance sooner rather than later to get a better rate.
In other words, the home is a custodian, but the mortgage is disposable. This didn’t work so well in early 2022 as mortgage rates nearly tripled from 3% to 8% by late 2023, but it has worked recently.
per Icethe average homeowner who applied for a refinancing rate and refinanced reduced their mortgage rate by more than a full percentage point in both September (-1.07%) and October (-1.17%).
This resulted in a monthly savings of $310 and $320 respectively, which is a very compelling reason to refinance.
At the same time, nearly a third of these borrowers were able to lower their mortgage interest rate by 1.5% or more, representing one of the best interest rate and term refinancing periods in decades.
As you can see in the chart above, the dark blue shaded portion (which denotes a 1.5%+ rate improvement) has jumped in recent months.
Light blue (1-1.49%) was also up, meaning it was a great time to look for a lower mortgage interest rate.
The reason is that the 30-year fixed yield appears to have peaked at around 8% in October 2023, then fell by nearly 2 percentage points in less than a year.
This significant difference has led to “some of the largest price improvements we have seen over the past 20 years,” according to ICE.
In fact, this mini-refinancing boom has been rivaled only by the 2020-2021 refinancing boom and the low-rate environment we saw in 2012/2013.
So, although it was short-lived, it had a significant impact on the borrowers who participated in it.
Most refinancers were only holding their long deals for 15 months
Have you ever thought about how long you will actually keep your mortgage?
It’s an important question to ask yourself because it can determine whether it makes sense to pay mortgage points and/or the type of home loan you choose.
After all, why choose a 30-year fixed loan if you expect to sell or refinance after a few short years? Why not choose an adjustable rate mortgage like a 5/6 ARM or 7/6 ARM?
Of course, there are risks if the price is not fixed, and the discounts are not always great, but it is important to consider this rather than just resorting to the default option.
Anyway, it turns out that the average interest rate and term refinancer held on to his original mortgage for only 15 months before refinancing.
This was the shortest period in nearly 20 years that ICE has been tracking the metric, which tells you that people have finally dated the price strategy.
New technology alerts lenders to reach borrowers
And while it appears that borrowers have been on top of it, you may be able to thank new technology for that, too.
Mortgage companies have become much better at reaching potential customers when mortgage rates fall.
There are automated systems that comb through the loan originator database daily, and if rates reach a certain point, they can send correspondence to potential clients.
This may explain why so many borrowers continued to have significant savings, despite mortgage interest rates rebounding by late September.
Speaking of which, nearly $47 million in monthly payment savings was generated by homeowners in September and October alone, before interest rates rose following the Fed’s rate cut.
I expect another boom in the mortgage refinancing sector to occur soon if mortgage rates continue on their current downward trajectory.
Both borrowers and originators are likely ready to pounce again.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My work experience in the early 2000s inspired me to start writing about mortgages 18 years ago to help potential (and current) homebuyers better navigate the home loan process. Follow me on Twitter for hot takes.
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