More Americans Have Mortgages Above 5%

The share of mortgage holders with rates of 5% or higher is now 24%, up from 10% two years ago, suggesting a refi tipping point could be on the horizon.

Four million loans originated since 2022 have rates of 6.5% or higher, according to ICE Mortgage Technology’s Mortgage Monitor.

An additional 1.9 million have rates greater than 7%.

With rates yo-yo-ing between the high 6%s and low 7%s, those homeowners currently have no reason to refinance. But rates are expected to cool as the year progresses, and even a slight downward trend could incentivize them.

“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,” Andy Walden, ICE’s Vice President of Research and Analysis noted.

“The entire market is acutely aware of how elevated rates have been constraining origination volumes. 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.”

A high concentration of homeowners with rates just under 7% can be attributed to a psychological comfort that comes with a rate in the 6%s, ICE says, rather than any tangible savings. This reflects homeowners’ affordability-minded attitudes in the current market, where a small difference in price makes a big impact.

Refis remain historically low, but there have been notable changes in who is taking advantage of them. Americans with VA loans accounted for more than 30% of rate/term refinance locks in the last few weeks, compared to about 10% a few years ago.

The ICE U.S. VA 30-Year fixed rate mortgage index is down nearly a full point from its October 2023 peak, giving this group a specific reason to refinance.

But refinances come at a cost: the average borrower’s loan balance rose to buy down their rate and/or finance closing costs.

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