And this number could significantly increase
In the first two months of 2016, interest rates dropped by 30 basis points, creating an increase in the number of borrowers that could qualify for refinancing.
According to the Mortgage Monitor Report released today by Black Knight Financial Services, the number of borrowers who could both likely qualify for and benefit from a refinance increased by 30%, or by 1.5 million.
That makes a total of 6.7 million borrowers who could save about $3,000 a year, due to decreasing interest rates, according to the report. In all, that is potentially $20 billion in savings.
“When Black Knight last looked at the refinanceable population just two months ago, there were 5.2 million potential candidates, and that number was on the decline,” Senior Vice President Ben Graboske said. “That analysis was shortly after the Federal Reserve raised its target rate by 25 basis points, at which time the prevailing wisdom was that mortgage interest rates would rise in response.”
“Global economic shocks then sent investors looking for the safety of U.S. Treasuries, driving down yields on benchmark 10-year bonds,” he said. “Mortgage interest rates began to fall in defiance of prevailing wisdom.”
A total of 3.3 million borrowers could save at least $200 per month, and almost one million borrowers could save at least $400 per month, according to Black Knight.
Prepayment rates, although they have yet to materialize, hit a two year low in January after significant deceleration in the fourth quarter.
“This expansion of potential candidates could very well provide a welcome and unexpected lift to the market as we move forward in 2016,” Graboske said.
In addition, Black Knight ran an example scenario where rates continue their downward trend. In the scenario, where the 30-year rate was brought down to 3.5%, the population increased to 8.8 million. That is the largest number of refinanceable borrowers since 2012 to 2013, when rates were at their lowest.
The population is extremely rate-sensitive, according to the report. When the rates in the scenario were increased, the numbers quickly dissipated.
Last week, mortgage rates increased for the first time in two months from 3.62% to 3.64%.