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Mortgage rates: Few left who can benefit from refinancing

Yahoo Finance US logo Yahoo Finance US 6/21/2022 Gabriella Cruz-Martinez

The number of highly qualified homeowners who could benefit from refinancing plunged to the lowest level in more than two decades, following a rapid jump in mortgage rates last week.

Only 472,000 high-quality candidates could shave at least three-quarters of a point off their mortgage by refinancing at the average rate of 5.78% quoted last week by Freddie Mac, according to figures mortgage technology and data provider Black Knight gave Yahoo Money.

That’s down from 11 million at the beginning of 2022 and an estimated 20 million 2020. It’s also the smallest candidate pool since at least 2000 when Black Knight first began tracking the data.

“On the refi side, all of it really is rate driven,” Joel Kan, associate vice president of industry forecasting at the Mortgage Bankers Association, told Yahoo Money. “People refinance because they get a lower rate and can save on their monthly payments. With rates up, there really isn’t a whole lot left.”

The rate on the 30-year fixed mortgage – one of the most popular home loans – hit its highest level since 2008 last week after its largest one-week jump in 35 years. Rates are more than two and a half points higher since the onset of the year.

According to Black Knight, 95% of homeowners with a mortgage have a mortgage rate of 5.75% and below, compared with the average rate of 5.78%.

The few borrowers who could benefit from refinancing could save an average $309 per month at today’s rates, according to Black Knight, with more than half the total number of candidates saving between $100 to $300 per month.

(Credit: Black Knight) © Provided by Yahoo Finance US (Credit: Black Knight)

Black Knight considers a high-quality candidate as a 30-year mortgage holder that has 80% loan-to-value ratio and a credit score of 720 or above.

“We have definitely seen a decline in mortgage applications and a decline in activity,” Lizy Hoeffer, chief experience officer for Cross Country Mortgage in Arizona, told Yahoo Money. “It’s hard to compare what is normal because it’s an odd market. We’re doing less transactions primarily because there’s not a lot of refinances.”

The volume of refinance applications was 76% lower than the same week a year ago, according to the MBA’s survey for the week ending June 10. The refinance share of mortgage activity was 31.7% of total applications. A year ago, refinance applications made up 61.7% of total applications when the average rate was under 3%.

The days of getting a mortgage rate below 4% have become a thing of the past, at least for the foreseeable future, said Jeffrey Ruben, president at WFSF Mortgage. Experts largely don't expect mortgage rates to come back down as long as the Federal Reserve keeps hiking its rate to combat inflation.

“Just to get a better rate is pretty much at a standstill,” Ruben told Yahoo Money. “There's just not a lot of opportunities with rates rising as they have.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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