While the mortgage market is made up mostly of loans with lower interest rates, it is gradually shifting toward a higher average, according to the latest Intercontinental Exchange (ICE) Mortgage Monitor report.
Consider that as of May, 24% of homeowners with mortgages carry an interest rate of at least 5%. That’s a far cry from just two years prior, when nine of 10 mortgage holders had loans with rates below that point.
“All in, there are 5.8 million fewer sub-5% mortgages in the market today than there were at this time in 2022,” said Andy Walden, ICE’s vice president of research and analysis. “This has been a slow-moving change, as borrowers with lower rates have sold their homes or, to a smaller degree, refinanced to withdraw equity.
“The entire market is acutely aware of how elevated rates have been constraining origination volumes,” Walden continued. “But seen from another angle, the same dynamic is also serving to gradually enlarge the population of folks with high-rate mortgages, who are actively waiting for the moment a refinance makes sense. This would benefit both a growing number of homeowners and lenders.”
Some 4 million loans originated since 2022 have interest rates of at least 6.5%. Roughly 1.9 million of those carry a rate of at least 7%. That’s a slice of homeowners that represents a moderate measure of refinance growth opportunity as rates cool, which may bear watching with refi volumes still hovering at a fraction of their historical level.
“The concentration of active loans just below 7% has more to do with borrower psychology than concrete savings,” said Walden. “There’s clearly something appealing in today’s market for a homeowner to see a 6-handle in front of their mortgage rate. From a rate/term refinance lending perspective, this group is worth watching as they represent a potential tipping point for a return to more meaningful, albeit historically modest, refi volumes.”
Some segments of the market are already seeing noteworthy swings in refinance activity. For example, ICE’s report noted a recent increase in refinances among VA loans. Last year, less than 10% of rate-and-term refis came from the VA market, a share that has of late ballooned to more than 30%. It’s an increase that can be attributed largely to streamline refinances, with many veterans — particularly those who took out mortgages within the past year when rates have been at their recent high — taking advantage of the VA’s Interest Rate Reduction Refinance Loan program to slash their rate by more than a percentage point. Such loans refinanced in April have led to an average savings of $230 per month, per ICE data.
