Refinancing may be slow, but millions of homeowners could still benefit from securing a mortgage with a lower rate. Only one in five eligible borrowers has refinanced, even though the rest could save significant money, according to a new report from Redfin. This is the highest share in over four years, up from less than one in 10 a year ago.
As of Q1 this year, just 9% of all homeowners who could save money by refinancing to today’s average rate of 6.08% have done so. The real estate brokerage states this is the lowest “take-up rate” since 2020. Among all mortgaged homeowners, fewer than 2% have refinanced.
Today’s take-up rate mirrors individual quarters in 2020 and 2021. However, when those eight quarters are considered collectively, over half of "in-the-money" borrowers refinanced during that period.
Defining "In-The-Money" Borrowers
Redfin defines an "in-the-money" homeowner as one who could benefit from refinancing if their current mortgage rate is at least 50 basis points (bps) below the rate they are currently paying. Redfin’s calculations are based on a 6.08% mortgage rate, the average so far this year.
For those meeting this definition, refinancing now could significantly lower monthly payments and total interest costs over the life of the home loan, said Bill Banfield, chief business officer at Rocket Mortgage. "Even a modest rate reduction can add up to big savings, helping free up cash, build equity faster, or better weather future financial uncertainty."
Potential Savings And Market Context
By refinancing, borrowers could consolidate debt or change their loan type. Some homeowners take advantage of lower rates to change their loan’s length, paying it off faster while maintaining a similar monthly payment.
Currently, rates hover around 6%, the lowest level in three and a half years. This means 21% of all mortgage borrowers have a rate above 6%. This is the highest share in 10 years and marks the first time in five years that more borrowers have a rate above 6% than below 3%.
How much borrowers could save depends on their current mortgage rate and the rate available today. Banfield offered this example: A homeowner bought a $500,000 home in Oct. 2023, when rates reached a 20-year high of 7.8%. Assuming a 20% down payment, this homeowner’s current monthly mortgage payment would be about $3,700. Refinancing to a 6% rate would reduce the payment to about $3,200, saving $500 per month. If the homeowner pays $10,000 in refinance fees, it would take less than two years — 20 months — to recoup the cost.
The last time this many homeowners were "in the money" for a refinance was at the end of 2021, when mortgage rates averaged 3.08%, and roughly two in five would have benefited. The "in-the-money" share peaked at nearly 70% at the end of 2020, when mortgage rates plummeted to 2.76% during the pandemic.
Reasons For Not Refinancing
Some homeowners have reasons for not refinancing. For example, some are waiting for rates to fall further. "People may be hesitant to lock in a rate if they think rates will dip further in the near future, even if they could save money now," Redfin pointed out.
Others are unaware of potential savings or are not paying attention to market changes. Some lack the funds to pay for closing costs and other fees, while others cannot qualify for a new mortgage.
As a result, homeowners are leaving what Redfin calls "massive" amounts of money on the table. Homeowners refinanced an estimated $223 billion worth of home loans in Q1. However, they could have refinanced $2.24 trillion worth. That $2.24 trillion represents the total loan value of the 90.9% of "in-the-money" homeowners who did not refinance.
