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Mortgage Rate Surge Shrinks the Pool of Refi-Eligible Home Loans

mortgage rates refinancing pool

The pool of consumers who would benefit from refinancing their mortgages shrank this week to the lowest level since 2019 as rates for home loans jumped.

The nearly one-quarter of a percentage point gain in interest rates for home loans this week, reported yesterday by Freddie Mac, shrank the number of potential refinancing candidates to 7.1 million, down from about 11 million at the end of December and a record 20 million earlier in 2020, according to Black Knight.

The increase in the average U.S. 30-year fixed rate to 3.45% from 3.22%, the biggest weekly advance since March 2020, “has huge implications for the refinance candidate population,” Black Knight said.

The pool of qualified mortgage holders who would benefit from refinancing now is the smallest since November 2019 when rates were around 3.75%, the mortgage technology and data firm said in the report. Black Knight defines refinance candidates as 30-year mortgage holders who have at least 20% equity in their homes, credit scores of 720 or higher, and a current interest rate that’s at least 0.75% above the current level.

Disregarding eligibility criteria like credit scores and equity, about 12 million mortgage-holders are “in the money,” with current interest rates at least 0.75% above today’s rate, Black Knight said.

Mortgage rates are rising as the Federal Reserve tapers its support of the bond markets by winding down the asset purchases it began in March 2020 to support the economy and prevent a credit crunch during the early years of the pandemic.

Minutes of the Fed’s December meeting released last week showed members of the policy-setting Federal Open Market Committee planned to trim the central bank’s holdings of Treasuries and mortgage bonds, in addition to quickening the pace of its asset purchases and lifting its benchmark rate in the first half of 2022.

The average U.S. rate for a 30-year fixed mortgage probably will be 4% this year, up from 3.1% in 2021 and an all-time annual low of 2.8% in 2020, according to a forecast from Mortgage Bankers Association.

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