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Millions of borrowers just missed their chance to save


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The number of borrowers who could benefit from a mortgage refinance just dropped dramatically thanks to fast-rising interest rates.

The average rate on the 30-year fixed loan has jumped more than 50 basis points since the start of this year, cutting the number of refinance candidates down to just 5.9 million, according to Black Knight, a mortgage technology and data provider. That is down from about 11 million at the start of this year and roughly 20 million in late 2020.

Black Knight defines refinance candidates as 30-year mortgage holders with a maximum 80% loan-to-value ratio and credit scores of 720 or higher, who could shave at least 0.75% off their current first lien rate by refinancing.

As a result, mortgage applications to refinance a home loan are down by half from a year ago, according to the Mortgage Bankers Association. The impact on lending volume is enormous, but there is also a lagging impact on potential consumer spending, as borrowers lose out on savings that they might spend on something else.

Given that rates have been so low for so long, essentially hovering near record lows since the start of the pandemic, borrowers may not have felt the need to rush into a refinance. Or, perhaps, they thought rates might go even lower. Still, nearly 18 million homeowners have refinanced over the last two years. That volume will not hold at higher rates.

“That said, 2022 refi volumes are shaping up to rival those of any of the six years prior to the pandemic, with some tailwinds from rising home values and tappable equity levels,” said Andy Walden, vice president of enterprise research and strategy with Black Knight.

“Black Knight had already been tracking a shift to an equity-centric refinance market; these latest rate increases have simply accelerated that phenomenon,” he added.

Homeowners today are sitting on a record amount of equity, given the sharp rise in home prices. Just last year, they gained an average $50,200 in housing wealth, according to the National Association of Realtors.

Despite the recent rate rise, the 5.9 million borrowers could still see considerable savings from a refinance, about $275 a month per borrower or an aggregate monthly savings of $1.6 billion. Of that population, more than a million borrowers could save at least $400 a month, and 661,000 could save $500 or more, given their current rates.


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