How far mortgage rates would need to fall to unlock a refi boomlet

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Heading into the fall last year, the average 30-year fixed mortgage rate slipped to a low of 6.07% by September 17, as the market reacted to weaker than expected labor market data. At that point, the number of mortgage borrowers “in the money” for a refinance opportunity, meaning a refinance would lower their interest rate by at least 0.75 percentage points, jumped to 4.3 million, according to ICE Mortgage Technology data provided to ResiClub.

That mortgage rate low last September did indeed spur a mini “refi boomlet,” as some 2022–2024 borrowers took the opportunity to get payment relief. However, it was short-lived and quickly fizzled out once labor market data tightened and mortgage rates popped back up.

Last week, when the average 30-year fixed mortgage rate was 6.77%, only 1.3 million mortgage borrowers were “in the money” for a refinance opportunity.

IF mortgage rates were to fall a bit heading forward, at what level would we start to see another refi boomlet?

According to ICE Mortgage Technology, here’s how many U.S. mortgage borrowers would be “in the money” for a refinance opportunity at various hypothetical 30-year fixed mortgage rate thresholds:

6.25% —> 1.5 million mortgage borrowers would be “in the money” for a refi

6.00% —> 2.2 million

5.75% —> 3.0 million

5.50% —> 3.6 million

5.25% —> 4.1 million

5.00% —> 4.9 million

4.75% —> 5.5 million

4.50% —> 6.1 million

4.25% —> 6.6 million

4.00% —> 7.8 million

3.75% —> 8.8 million

3.50% —> 10.2 million

3.25% —> 11.6 million

3.00% —> 14.3 million

Back in September 2024, when the average 30-year fixed mortgage rate dipped to 6.07%, around 4.3 million U.S. mortgage borrowers were “in the money” for a refinance opportunity. To return to a refi group of that size, the average 30-year fixed mortgage rate would need to fall below 5.50%.

Why is that?

Because during that so-called “refi boomlet” last fall, some borrowers from the 2022, 2023, and 2024 vintages—who originally had mortgage rates between 7.00% and 8.50%—took the opportunity to refinance. Now that those borrowers have locked in lower rates, it would take an even bigger drop in rates to generate the same level of refinance activity.

The reason that some folks in the housing sector refer to last fall’s refi bump as a “refi boomlet” is because it’s tiny compared to the refi waves of the past—just look at the historical chart below.

Heading forward, the mortgage industry's concern is that even if mortgage rates fall to a 5-handle, it might not be enough to trigger a long, sustained refi boom.

The reason? Among U.S. homeowners who have a mortgage, 71.3% have an interest rate below 5.0%—and 20.7% have a mortgage rate under 3.0%. Some homeowners won’t refi regardless of how far mortgage rates fall.

Given that traditional refinancing could be limited and U.S. homeowners are sitting on near-record levels of equity, many analysts believe the macro backdrop will spur growth in the home equity loan market, including HELOCs—which have slowly been ticking up since 2022.

“As we look ahead, the next refi wave will not be a rate & term refi story as it was during the low-rate era of the pandemic, it will be the resurgence of home equity,” Jeff DerGurahian, chief investment officer and head economist at loanDepot, told ResiClub last year.

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Note: I didn’t mention it above because I’m not 100% sure which mortgage denominator ICE Mortgage Technology used, but according to the FHFA, there are 51.4 million active residential mortgages in the United States.