Mortgage rates are expected to rise further this year to their highest level in a decade, affecting home buyer’s monthly payments and lessening the dollar increase in home-purchase lending. A larger effect will be on refinance: Millions of homeowners had refinanced into low-rate mortgages over the last few years. These homeowners are unlikely to refinance their low-rate mortgage unless needing to cash out some home equity for home improvements or other expenditures.
Using the CoreLogic TrueStandings data, we calculated the cumulative distribution of single-family mortgage debt outstanding by interest rate on the loan. Only 3 percent of the debt outstanding had a mortgage rate of 6 percent or higher, or only about $300 billion had a financial incentive to refinance to a lower rate. (Figure 1) Why haven’t these homeowners refinanced already? Some may have insufficient home equity, a recent delinquency, or a small loan balance: The average loan size was about $100,000 for these high-rate loans.