The number of borrowers who could benefit from mortgage refinancing has decreased significantly, due to the rapid rise in interest rates.
The average interest rate on the 30-year term loan has risen by more than 50 basis points since the beginning of this year, reducing the number of people eligible for the refinance to just 5.9 million, according to Black Knight, a technology provider. and mortgage data… It’s down from around 11 million earlier this year and to around 20 million by the end of 2020.
Black Knight defines refinancing applicants as 30-year mortgage holders with an LTV of 80% or lower and credit scores of 720 or higher who could save at least 0.75% of their current mortgage rate through refinancing.
As a result, mortgage applications to refinance a home loan halved from the previous year, according to the Mortgage Bankers Association. Credit size has a big impact, but there is also a slowdown in potential consumer spending because borrowers will lose the savings they might be spending on something else.
Given that interest rates have been so low for so long and have been at an all-time low since the start of the pandemic, borrowers may not have felt the need to refinance. Or maybe they thought rates might drop even further. But nearly 18 million homeowners have refinanced in the past two years. This amount will not bear higher rates.
“However, 2022 refi volumes should be in line with the six years before the pandemic, with some wind in favor from rising internal values and fragile levels of equity,” said Andy Walden, vice president of research. and Black Ritter’s corporate strategy.
“Black Knight had already seen the transition to an equity-focused financing market; These recent rate hikes have only accelerated this phenomenon, “he said.
Homeowners are at record levels of equity today as home prices rise. In the past year alone, according to the National Association of Realists, they have received an average of $ 50,200 in real estate.
Despite the recent rate hike, 5.9 million borrowers could still realize significant savings from refinancing, about $ 275 per month per borrower, out of total monthly savings of $ 1.6 billion. Of this population, more than one million lenders could save at least $ 400 per month, and 661,000 could save $ 500 or more at their current interest rates.