Homeowners who recently refinanced experienced the biggest improvement in their mortgage rates in decades Loaner

When mortgage rates fell to around 6% in August, homeowners jumped at the chance to refinance.

During the months of September and October, more than 300,000 borrowers entered into refinancing, including nearly 150,000 rate and term refinances, according to ICE’s latest Mortgage Monitor report.

This pushed refinancing volumes to their highest levels in more than two and a half years.

And more than a quarter of October’s mortgages were refinances in a market long dominated by home purchase loans.

Perhaps most interestingly, borrowers who refinanced during these months experienced some of the biggest rate improvements in decades.

The average refinancer got a mortgage rate about 120 basis points lower

You’ve probably heard the phrase marry the house, date the rate. But if not, that was basically an argument for buying a house if you wanted one and hoping to refinance it sooner rather than later to get a better rate.

In other words, the house is conservative, but the mortgage is disposable. This didn’t work well in early 2022, as mortgage rates nearly tripled from 3% to 8% by the end of 2023, but it has worked recently.

By ICEthe average homeowner who requested a rate and term refinance reduced their mortgage rate by more than one percentage point in September (-1.07%) and October (-1.17%).

This resulted in monthly savings of $310 and $320 respectively, which is a pretty compelling reason to refinance.

At the same time, nearly a third of these borrowers were able to reduce their mortgage rates by 1.5% or more, marking one of the best refinancing rates and terms in decades.

As you can see in the chart above, the darker blue portion (which signifies a rate improvement of more than 1.5%) has surged over the past few months.

And the lighter shade of blue (1-1.49%) also skyrocketed, meaning it was a good time to shop around for a lower mortgage rate.

The reason is that the 30-year fixed rate appeared to peak at around 8% in October 2023, then fell almost two percentage points in less than a year.

This large gap has resulted in “some of the largest rate improvements we have seen in the last 20 years,” according to ICE.

In fact, this mini refi boom has only really been matched by the refi boom of 2020-2021 and the low rate environment seen in 2012/2013.

Although it was short-lived, it had a considerable impact on the borrowers who participated.

Most refinancers had only held their long position for about 15 months

Have you ever thought about how long you will actually keep your mortgage?

This is an important question to ask as it can determine whether it makes sense to pay mortgage points and/or what type of home loan to choose.

After all, why opt for a 30-year fixed if you plan to sell or refinance a few years later? Why not choose an adjustable rate mortgage like a 5/6 ARM or 7/6 ARM?

Of course, there is risk if the rate isn’t fixed and the discounts aren’t always great, but it’s an important consideration to make instead of just going with the default option.

Regardless, it turns out that the mid-term refinancer only held on to their original mortgage for 15 months before refinancing.

This is the shortest tenure in nearly 20 years that ICE has been tracking the measure, which tells you that people have finally figured out when the rate strategy was adopted.

New technology encourages lenders to contact borrowers

While it seemed like borrowers were in the know, you may also be able to thank new technology for that.

Mortgage companies have become much better at reaching potential customers when mortgage rates fall.

There are automated systems that scan a loan issuer’s database daily and if rates reach a certain point, they can send a match to potential customers.

This could explain why, despite mortgage rates rising in late September, so many borrowers were still able to make significant savings.

Speaking of which, about $47 million in monthly savings was locked in by homeowners in September and October alone, before rates rebounded after the Fed’s rate cut.

I expect another refinancing boom to materialize soon if mortgage rates continue on their current downward trajectory.

And chances are borrowers and originators are ready to pounce again.