Many borrowers still want to refinance their homes

Despite higher-than-expected interest rates this spring season, many borrowers are still interested in refinancing their homes.

One-third of homeowners responding to a 1000-person survey say that they are currently refinancing or likely to refinance in the next two years, according to Refi.com.

Many borrowers are locked into low rates post-pandemic and lack the financial incentive to refinance, but they do not represent the full market. However, three-quarters of homeowners surveyed who are considering a refinance currently have rates above 5%

"The popular narrative around refinancing has centered almost entirely on borrowers who locked in sub-3% rates during 2020 and 2021 and have no incentive to move. Those borrowers are real, but they are not the whole market," said Kyle Bass, production business manager at Refi.com in a press release.  

The Freddie Mac 30-year FRM is 6.47% as of June 18, hovering around the 6.5% monthly average. Interests rates hit their highest at 7.76% in November 2023 and their lowest of 2.77% in August 2021.

More than half interested in refinancing are Gen Z or millennials with the majority of those having credit scores 680 or higher. Many of these younger borrowers entered the market when rates were higher and are in a position to act now. 

Younger buyers appear to be more risk-tolerant, accepting higher rates with the goal of a future refinance, according to a 2025 report from Truework. The problem, however, is that many homebuyers are not expecting extra costs, such as repairs and insurance. 

For reasons why they want to refinance, 62% of those surveyed say that they want to lower their monthly payments. Another 15% want to access more of their home equity, which means trading some of their increased value for hard cash for renovations or other expenses. The last 13% want to shuffle what they owe, trading credit cards and personal loans with higher interest rates for lower interest mortgage debt.

A lack of understanding

Homeowners are in the middle between wanting to do a refinance, while on the other hand actually moving forward and applying for one. This is because of uncertainty and a lack of understanding, Refi.com said. Misconceptions include believing that refinancing only makes sense when rates drop significantly, that they need at least 20% equity and that refinancing is only necessary under financial distress.

The current rate environment has suppressed traditional refinance activity, so lenders are adding second lien products like home equity loans and lines of credit. Refinance volume contracted by over 90% between 2021 and 2023. Yet lenders can market to those on the sidelines who need clarity about their options.

Fewer than half of the homeowners say they are comfortable with calculating a break-even point on a refinance, which is when the money saved from a lower mortgage payment equals the amount paid in closing costs to get the new loan. 

"A borrower who is intellectually ready to refinance but hasn't started the process is often just waiting for someone they trust to confirm the math makes sense," said Bass.

However, economists worry that persistent inflation is likely to keep Treasury yields elevated and delay a mortgage rate drop that would prompt a refinancing decision.