Mortgage refinance activity is expected to increase as interest rates drop, with a federal rate cut anticipated by mid-September. This decline is encouraging many homeowners, who borrowed during high-interest periods, to consider refinancing for lower payments. According to CoreLogic, an information services provider of financial, property, and consumer data, refinance applications more than doubled in August 2024 compared with the same time last year. Despite many loan-holders being locked in at lower rates, many homeowners with mortgages purchased while mortgage interest rates were high. As of June 2024, an estimated $579 billion in loan balances have an interest rate in the 6.75% to 7.5% range, and an additional $157 billion in loan balances are at or above 7.5%.
Nearly one-in-two (46.1%) of the loans in this sample portfolio were originated between 2020 and 2022, when interest rates were at record lows. These loans are “locked-in” to their existing low to ultra-low rates.
Loans originated in 2023 and 2024 make up 7.7% of the 15.7 million servicing loans in the portfolio we analyzed. Many of these loans from those years are likely already “in the money” candidates for a lower rate refinance or will be among the first in line to apply for refinancing should interest rates drop at or below 6%.
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