Millions of homeowners now eligible for refinancing as mortgage rates drop
Mortgage rates dropped ahead of the Federal Reserve's upcoming meeting, leading to a spike in refinance applications.
Overall applications jumped 14.2% in the week ending September 13, according to the Mortgage Bankers Association’s (MBA) Weekly Applications Survey. On an unadjusted basis, applications jumped by 26% from the previous week.
MBA deputy chief economist Joel Kan explained that expectations of a potential Fed rate cut had already begun to push mortgage rates lower. The average interest rate on 30-year fixed-rate mortgages fell to 6.15%, down from 6.29% the previous week, marking the lowest rate since September 2022 and over a full percentage point below last year’s level.
Refinance applications were particularly buoyant, increasing by 24%, more than double the pace seen a year ago. Kan noted that this is the fastest pace of refinancing activity the market has seen since 2022, pointing to both conventional and government loans contributing to the surge.
MBA’s refinance index showed a 127% year-over-year increase, while the purchase index was 0.4% lower than the same week one year ago. However, purchase applications were up 5% week-over-week.
“There was also an increase in purchase applications, and it is notable that conventional purchase applications increased to a pace ahead of last year, which also drove overall purchase applications very close to year-ago levels,” Kan said in the report. “Homebuyers are seeing improving affordability conditions, sparked by lower rates and slower home-price growth.”
Refi frenzy
The falling rates have brought refinance opportunities back into focus, with 4.2 million mortgage holders now in a favorable position to refinance at least 75 basis points below their current rate, according to data from Intercontinental Exchange (ICE).
This marks the largest volume of refinance potential since mortgage rates began climbing above 4.25% in early 2022.
“The fog may finally be clearing on the refinance market, with opportunity beginning to emerge for folks who purchased in recent years with the hope, or even expectation, that they would be able to refinance and improve their payments when the Fed let off the brakes on their rate policy,” said Andy Walden, vice president of research and analysis at ICE.
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Among those eligible for refinancing, 2.9 million borrowers took out their mortgages over the past two years, and around 40% of 2023 and 2024 mortgage holders could benefit from a refinance.
The average high-quality refinance candidate (those with a credit score of 720+ and at least 20% home equity) could save an average of $299 per month through refinancing, resulting in an aggregate savings of $295 million per month among these borrowers.
MBA’s data also showed that the refinance share of total mortgage activity increased to 51.2%, up from 46.7% in the previous week.
“Tomorrow’s Fed meeting and corresponding commentary have the potential to move the needle further,” ICE said in a statement.
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