Refi borrowers pounced on fall’s short window of lower mortgage rates

A welcome drop in 30-year conforming mortgage rates to the low-6% range led to a burst of refinance activity early in the fall, with more than 300,000 mortgage holders closing refinance transactions in September and October. That’s according to the December 2024 Mortgage Monitor report from Intercontinental Exchange (ICE).

“Homeowners pounced on their incentive to refinance as rates fell through August and September,” Andy Walden, vice president of research and analysis at ICE, said in a statement. “More than 300K mortgage holders closed on refinance transactions in September and October, the most we’ve seen in two-and-a-half years.

“What’s more, almost half of that activity involved the homeowner refinancing into a better rate, with October marking the first time in three years that there were more rate/term than cash-out refinances in a given month.”

ICE data also showed that technologically adept lenders were ready to meet higher refinance demand, with average closing times among all loan types hitting their lowest levels for the month of October in the five years the company has been tracking the metric. 

ICE tracks loans before and after a refinance or other prepayment. Its data revealed that these faster closing times translated into higher retention rates, with servicer retention hitting a 2.5-year high in third-quarter 2024 as 28% of refinancing borrowers were retained by their current servicer.

“This brief, but welcome, spike in refinancing was dominated by homeowners quickly ditching their recently acquired mortgages,” Walden said. “Refinances out of 2023 and 2024 vintages drove an impressive 78% of recent rate/term lending and nearly half of refi activity overall. … These folks cut their first lien rates by more than a point and their monthly mortgage payment by $320 per month. That works out to roughly $47M in monthly payment savings locked in by homeowners in just September and October alone.”

Walden added that the average rate-and-term refi borrower had been in their prior mortgage for just 15 months, the shortest average length of time in the nearly 20 years that ICE has tracked this metric. 

More than two-thirds of all rate-and-term refinance borrowers lowered their rate by more than a full percentage point, ICE reported. Nearly one-third were able to improve their rate by 1.5 percentage points or more. 

The average rate-and-term refi involved a cut of more than 1 percentage point in September (-1.07 percentage points) and October (-1.17 percentage points). This locked in average monthly payment reductions of $310 and $320, respectively.

Borrowers with U.S. Department of Veterans Affairs (VA) loans had saw the largest monthly improvements, dropping their rates by 1.28 percentage points on average in October. VA mortgages also accounted for roughly 30% of rate-and-term refi activity in September and October, a figure that ICE said is four times higher than their representation among active mortgages.

But these loans carry more risk. More than 35% of VA rate-and-term refis originated in 2024 have had loan-to-value (LTV) ratios exceeding 100%.

“As you’d expect, the interest rate threshold at which a given homeowner would be enticed to pull the trigger on a refi varied by loan size,” Walden noted. “Nearly half of refinancing borrowers with balances between $250K and $375K needed a 125 basis point reduction before deciding to refi.

“The distribution of rate savings for those with balances between $375K and $624K were largely similar. Once a borrower’s balance got above $750K, however, it was clear that less rate incentive was required for a refinance to be of value. Nearly 40% of those borrowers cut their first lien 75 bps or less by refinancing, and about 12% saw benefit in doing so even with less than a 50 bps reduction.”

ICE also revealed that the national delinquency rate fell slightly to 3.45% in October, down 0.8% from September but up 6% year over year — the fifth consecutive month of annualized increases. Foreclosure starts rose by 12.2% in October but were down 12.3% year over year. 

ICE also reported data readings following hurricanes Helene and Milton. There were more than 40,000 first-lien mortgages in six states (Florida, Georgia, North Carolina, South Carolina, Tennessee and Virginia) that are estimated to have become delinquent as a direct result of the storms.