While the majority of homeowners in the U.S. with mortgages continue to have interest rates locked in at less than 5 percent, the percentage of people with mortgages at interest rates above 5 percent has been steadily increasing.
According to ICE Mortgage Technology's July 2024 Mortgage Monitor report, 24% of homeowners with mortgages as of May had current interest rates of 5% or higher.
“It's striking that just two years ago, nine in 10 mortgage holders were below that threshold,” Andy Walden, ICE's vice president of research and analysis, said in the report. “Overall, there are 5.8 million fewer mortgages below 5% on the market today compared to this time in 2022.”
As Walden points out, the overall market is still heavily biased toward low-interest mortgages, but that's changing.
“It's a slow change, as lower-rate borrowers sell their homes or, to a smaller extent, refinance to extract equity,” Walden says. “The market as a whole is feeling the pain of how rising rates are impacting lending volume. But from another angle, those same dynamics are also helping to slowly grow the population of people with higher-rate mortgages who are actively waiting for the moment when it makes sense to refinance. This will benefit both the growing number of homeowners and lenders.”
As noted in the report, 4 million first-lien mortgages originated after 2022 have 30-year interest rates above 6.5%, and 1.9 million have rates above 7%.
On average, there are 240,000 active mortgages for every 1/8th of a percentage point in the 7-7.625% range, but there is a huge spike of 690,000 loans with interest rates just below 7%.
“The concentration of active loans below 7 percent has more to do with borrower psychology than tangible savings,” Walden says. “In today's market, mortgage rates rising into the 6 percent range are clearly attractive to homeowners. From a rate/term refinance lending perspective, this group is worth watching as it could mark an inflection point in a return to more meaningful, albeit historically modest, refinance volumes.”
Photo: Karsten Weingiert