Refinance activity is up 27%, but higher mortgage rates have pumped the brakes

Refinance volume is only a fraction of what it was three years ago when mortgage rates plummeted to historic lows, but borrowers have returned in greater numbers this year.

Recent data from CoreLogic shows that $347 billion in refinances were originated during the first 10 months of 2024. That’s up 27% compared to the $273 billion total for the same period last year, which was a 22-year low point. But it’s also a far cry from the $2.2 trillion issued in the first 10 months of 2021 when mortgage rates were in the 3% range.

CoreLogic analyzed data over the past five years and determined an “inverse relationship between mortgage rates and refinance activity.” The company noted that a rate decline of roughly 120 basis points during the 12 months ending in September 2024 pushed refi applications to their highest level in two years. Conversely, when mortgage rates rose just a month later, refi activity contracted.

HousingWire‘s Mortgage Rates Center shows that the average 30-year conforming loan rate is up about 20 basis points compared to a year ago, although the 7.05% figure on Monday is down significantly from the 2024 peak of 7.58% in early May.

The 15-year conforming loan rate has shown even more volatility. It started the year at 6.05%, rose past 7% in early July and plummeted to a low point near 5.5% at the end of September. But even with the Federal Reserve cutting benchmark rates three times since September, the 15-year rate jumped to a peak of 7.18% in early December and stood at 7.02% on Monday.

Intercontinental Exchange (ICE) reported earlier this month that borrowers took advantage of the short refinance window that opened in the fall. The data showed that the average refi borrower in September and October had their prior mortgage for only 15 months — the shortest time span tracked by ICE in the past 20 years. The average rate-and-term refi borrower during that time reduced their monthly payment by more than $300.

Another significant decline in mortgage rates could unlock a similar mini refi boom. But CoreLogic’s data illustrates the limited potential for this pool of borrowers as about 80% of current U.S. mortgage holders have rates below 5%.

Conversely, about 12% of borrowers have rates above 6%, and many of these mortgages have been originated since the start of 2023. This group could be incentivized to take out a new loan if rates fall again by a full percentage point or more.

Many forecasts call for mortgage rates to decline in 2025 even as market headwinds going into the year appear to be fierce. But the potential exists for the refinance business to expand if conditions are favorable. Fannie Mae recently called for refi volume to jump to $529 billion in 2025 — a 47% increase from the expected total of $360 billion in 2024.