Demand For Mortgage Refinancing Spiked In Early January 2023

In the past year, mortgage rates have seen historic spikes, more than doubling from about 3% for a 30-year fixed-rate mortgage in December 2021 to a high of 7% in early November 2022 (via Freddie Mac). Couple this with the impacts of inflation and rising home prices, and you have a large percentage of the population that has been priced out or discouraged from buying a home. This is exactly what the Federal Reserve was trying to achieve by raising interest rates — fewer borrowers means less demand, and less demand means decreased inflation. Despite this, however, there were still people that signed on to a mortgage with high interest rates.

Now, the market is beginning to cool. Rates have decreased by .75% since their peak in November and are expected to continue to dip over the next few months. Because mortgage rates are starting to see a decline, a wave of homeowners that signed on during their peak are looking to refinance their existing loans and save on their monthly payments.

According to CNBC, applications to refinance existing home loans recently increased by 5% as a result of the slight decrease in rates, but for the most part, homeowners are still holding on for continued decreases in mortgage rates before they attempt to cut down their monthly payments. A year ago, when mortgage rates were approximately half of what they are now, the draw to refinance was much stronger — an estimated 7 million borrowers could have cut down what they're paying. Now, however, under 300,000 homeowners could benefit from refinancing.

As mortgage rates continue to decrease as inflation cools, we will more than likely see continued waves of recent homebuyers looking to refinance their loans, but people who bought before the spike likely won't see much of a benefit. Overall, the housing market in 2023 is trending towards more reasonable prices and mortgage rates, but it will take a while before we see a complete reversal of last year's impacts.