Diving into the data from the brief refinance “boomlet” in the fall when mortgage rates fell into the low 6% range, the latest Mortgage Monitor Report from Intercontinental Exchange (ICE) found that homeowners who had obtained high-interest loans in recent years were swift to take action when rates became favorable.
ICE data shows that tech-savvy lenders were prepared to meet the demand, achieving the lowest average closing times for all loan types — purchase, cash-out, and rate-and-term refinances — in five years. Additionally, retention rates for servicers also saw improvement, with more than a third of refinancing customers staying with their original servicers, the highest in two and a half years. And at nearly 40%, retention was strongest at the most recent vintages.
“This brief, but welcome, spike in refinancing was dominated by homeowners quickly ditching their recently acquired mortgages,” said Andy Walden, ICEs vice president of research and analysis. “Refinances out of 2023 and 2024 vintages drove an impressive 78% of recent rate/term lending and nearly half of refi activity overall.”
Walden noted that the average length of time before refinancing was just 15 months, the shortest in nearly two decades. On average, refinancers reduced their interest rates by over a point and lowered their monthly payments by $320, resulting in an estimated $47 million in monthly savings for homeowners in just September and October.
Most who took on rate-and-term refis, in fact, saw significant rate reductions, with over two-thirds of rate/term refinances cutting their rates by more than 1 percentage point. Borrowers with VA-backed mortgages saw the largest improvements, with an average rate decrease of 1.28 percentage points in October. The report also found that homeowners with larger loan balances required smaller rate reductions to justify refinancing.
“As you’d expect, the interest rate threshold at which a given homeowner would be enticed to pull the trigger on a refi varied by loan size,” Walden said. “Nearly half of refinancing borrowers with balances between $250K and $375K needed a 125-basis-point reduction before deciding to refi. The distribution of rate savings for those with balances between $375K and $624K were largely similar. Once a borrower’s balance got above $750K, however, it was clear that less rate incentive was required for a refinance to be of value. Nearly 40% of those borrowers cut their first lien 75 bps or less by refinancing, and about 12% saw benefit in doing so even with less than a 50-bps reduction.”
Refinances into VA mortgages accounted for around 30% of rate-and-term lending in September and October, with many 2024 VA refinances having loan-to-value ratios over 100%, reflecting the refinancing of recent loans with little equity gain. This trend raises concerns about prepayment and performance risks for the future.