Residential Magazine

Establish the Digital Refinance Advantage

In a dwindling market, earn clients with innovative loan processes

By Lisa Kimball

As mortgage rates continue to rise, the demand for homebuying remains strong, but the number of people looking to refinance is dropping precipitously. With average interest rates for a 30-year fixed mortgage well above 5%, mortgage originators are watching the number of clients willing to refinance shrink.

In a market with dwindling demand, lenders and originators need every advantage. To get potential borrowers to overcome their inertia and apply, make the refinancing process as easy as possible for them.
Lenders should deploy digital tools and solutions that streamline every step of the loan application process, from preapproval to closing. Borrowers — especially digital natives — will use the lender offering the best experience, and with a decrease in volume, every client matters. Digital solutions can reduce risk and costs in the short term while increasing consumer loyalty and satisfaction in the long term.

Increase efficiency

Innovation in the mortgage ecosystem unlocks further understanding of how best to serve your clients, whether they exist as borrowers or lenders. This also helps facilitate solutions that improve the access and quality of information used to make decisions.
Digital validation of assets, income and employment can shave up to 12 days off the origination process and can be achieved within one simple interaction with a borrower. Using verification software, borrowers can give their lender permission to access their financial data. With these permissions, verifications can then be refreshed at no additional cost or hassle to the borrower, allowing for more originations in less time.
Given the record volume of originations many mortgage companies witnessed over the past couple of years, the ability to remain agile can translate to more business. Digital verification benefits everyone: It drives business for lenders and reduces stress for borrowers, making them more likely to return or refer friends and family.

Driving motivation

There are still many homeowners out there who want to use the equity in their homes, or who are sitting on a high-rate mortgage that could benefit from refinancing. While some homeowners are opportunistic and refinance on a regular basis to ensure they have the best rate, others don’t have the wherewithal to go through the lending process that often.
These homeowners just want to focus on their home and how to best utilize their equity. As rates begin to rise, however, homeowners who didn’t take advantage of the historically low rates over the past two years are feeling a sense of urgency.
Now, these homeowners want to lock in a lower rate for a more affordable payment or take cash out of their homes. And they want to do it quickly, before these loans become too costly.
To better understand the key motivators driving mortgage refinancing and the current challenges associated with the experience, Finicity, a Mastercard company, conducted a survey of 1,075 U.S. residents who took out a mortgage beginning in April 2020. The results uncovered that there are still areas of the origination and lending process that can introduce friction and stress for homebuyers and refinancers, and that these challenges have a significant impact on who they’ll look to for loans.

Remove friction

When it comes to refinancing an existing mortgage, Finicity’s data shows that two-thirds of homeowners were willing to refinance to secure a lower rate, while 58% of respondents achieved a rate 1% to 3% lower than their existing rate through their refinance.
Low interest rates present an opportunity for homeowners to refinance their existing mortgages and save money, but the Federal Reserve has been raising rates recently. This is signaling the end of the spike in U.S. refinances, a boom that saw nearly $5 trillion in refinanced mortgages over the past two years.
Another factor encouraging homeowners toward refinancing is the skyrocketing value of homes across the country. The average increase in equity for homeowners rose by 31.1% from third-quarter 2020 to third-quarter 2021, representing the largest increase in more than 11 years, according to CoreLogic. This jump in home equity is resulting in an increase in cash-out refinancing as borrowers look to dip into the increased value of their homes via second mortgages.
Without historically low rates incentivizing homeowners to refinance, lenders need to focus on streamlining their application and origination processes to facilitate a digital-first approach. This ensures anyone looking to refinance or buy their first home has a great experience.

Build trust

By the time prospective homebuyers reach the closing stages of the mortgage process, many have experienced a fair amount of fatigue and frustration. Will they qualify for a mortgage? Will the home appraise at the price they anticipate? Does the home pass inspection?
The last thing borrowers want to navigate is an antiquated and manual process fraught with cumbersome paper trails. In the Finicity survey, 89% of borrowers said the loan application process was more stressful or as stressful as the homebuying experience. Roughly 64% of borrowers indicated that frustration with their initial loan application process led to hesitation when it came time to refinancing.
Easing stress during the closing stage of the process is a key step in building trust with borrowers. Ultimately, stress is a major determining factor for many borrowers when they choose a refinance lender, and other types of lenders, in the future.
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The benefits of going digital don’t end here. The digital transformation of the lending lifecycle from prequalification to servicing is paving the way for a brighter lending experience — one where everybody wins. ●


  • Lisa Kimball

    Lisa Kimball is senior vice president of product and strategic programs for Finicity, a Mastercard company. In this role, Kimball works with clients, partners and industry innovators to advance the use of creative thought around consumer-permissioned financial data through Finicity’s open-banking platform. Kimball and her team are consistently improving Finicity’s current product suite while also creating next-generation client experiences to streamline lending processes, expand credit access and improve consumer financial awareness. 

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