Rate-and-term refinances surge nearly 40%, fueling market momentum
Mortgage refinance activity surged in February, driven by homeowners taking advantage of slightly improved interest rates, according to new data from Optimal Blue.
Although overall mortgage lock volume increased by 7% month-over-month, rate-and-term refinances were the standout, climbing nearly 40%.
“Interest rate improvement, while marginal, is attracting refinance activity as homeowners who bought at higher rates work the numbers and find they can reduce their monthly payments or tap into home equity,” said Brennan O’Connell, director of data solutions at Optimal Blue.
Mortgage refinance volume now accounts for 45.6% of all applications, up from 43.8% in the previous week, reflecting increased borrower interest. The Mortgage Bankers Association recently reported that refinance applications jumped nearly 16% week-over-week and 40% month-over-month.
Average credit scores among refinance borrowers have improved, with rate-and-term refinance borrowers averaging a 695 credit score and cash-out borrowers averaging 732, both slightly higher than prior months. However, the average credit score for homebuyers remained stable at 737.
Despite this boost in refinancing, the home-purchase market remains slow. Purchase mortgage locks continued to decline, falling 5% compared to last year. Even with a slight uptick in average home prices from $476,200 in January to $480,200 in February, overall buyer demand remained weak as potential homebuyers stayed cautious, waiting to see if rates fall further.
Conforming loans showed signs of modest recovery, making up 52% of the overall mortgage market, while FHA loans stayed around 20%, and VA loans climbed slightly to approximately 11.5%. Non-conforming loans, including jumbo and non-qualified mortgages (non-QM), remained steady at about 15.5%.
“The upcoming homebuying season will reveal whether purchase demand is poised for a rebound or if elevated rates will continue to keep buyers on the sidelines,” O’Connell said in the report.
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