A new report says that with average mortgage interest rates set to rise above 6% from the second half of 2022 onwards, refinancing is becoming more likely.
About 24% of mortgage holders currently have interest rates above 5%, and that percentage is set to more than double from 2022 onwards, according to data from Intercontinental Exchange's Mortgage Technology division.
“As recently as two years ago, a staggering nine in 10 mortgage holders fell below that standard,” Andy Walden, vice president of research and analytics at ICE Mortgage Technology, said in a press release.
Lenders have issued 4 million mortgages with interest rates above 6.5% since mid-2022, including 1.9 million with interest rates above 7%, according to ICE's monthly Mortgage Monitor report.
The overall current housing market is seeing 5.8 million fewer mortgages at less than 5% compared to the same period in 2022. The share of mortgages at interest rates below 4% fell by 4.8 million.
But while homeowners seem to accept that rising interest rates may be here to stay, that doesn't mean they aren't exploring ways to lower them.
In a borrower survey conducted this year by ICE Mortgage Technology, more than two-thirds of respondents said finding the lowest interest rate was one of the most important considerations when choosing a lender. That 68% response rate far surpassed the second most important factor, low lender fees (47%). Speed to closing came in third at 33%.
But despite their apparent sensitivity to rates, borrowers aren't spending their time window shopping. The majority considered two or fewer lenders before taking out a loan. Thirty-six percent considered only one mortgage company, and just under half, 48%, considered two. This data lines up with a recent survey from Lending Tree, which also revealed an even higher percentage of borrowers are likely to accept the first offer they receive.
But Walden noted there is also opportunity among newer borrower profiles, with more recent higher-rate loans providing a potential pipeline for future refinancing when the time is right.
While the percentage of borrowers with interest rates above 6 percent has increased, there has also been a notable increase in the number of loans with interest rates just below 7 percent compared to the number of loans above that threshold. The jump of 690,000 borrowers in this particular range is likely due to homeowners opting to lower their interest rates, ICE suggested.
“The concentration of loans just below 7 percent has more to do with borrower psychology than tangible savings. In today's market, it's obviously appealing for homeowners to see the number '6' in front of their mortgage rate,” Walden noted.
“From a rate/term refinance loan perspective, this group is worth keeping an eye on as it could represent a turning point in a return to more meaningful, albeit historically modest, refinance volumes.”
While refinancing remains well below historical levels, about one-third of transaction volume in recent weeks has been rate-and-term deals, with a big increase in loans guaranteed by the Department of Veterans Affairs. ICE's report found that refinancing of VA loans in April reduced monthly payments by an average of $231. The technology provider also found that many of the refinancings in early 2024 were for mortgages originated in the prior year.
But a new report from Stratmore Group says that even if refinancing picks up, the wealth won't end up being evenly distributed across the lending industry. Lenders that sold servicing rights to secure liquidity during the current downturn will be at a disadvantage going up against companies that have retained servicing rights, which can leverage existing relationships to retain customers rather than relying on trigger leads.
“I've spoken to a lot of lenders and deep down they believe all their problems will go away once the next wave of refinancing hits the business,” says Garth Graham, a senior partner at Stratmore. “But that's not guaranteed.”