Historically low mortgage rates during the pandemic

Remember 2020? (Of course you do—who could forget!) In the mayhem of the pandemic, something almost magical happened for the housing market: mortgage rates took a nosedive to historic lows. It was like Black Friday for homebuyers—suddenly, stretching for that extra bedroom or a swankier zip code didn’t seem so out of reach. Even us homebodies who decided to bunker down instead of joining the mass migration to the ‘burbs cashed in on these rates. Savvy folks jumped at mortgage refinancing, trimming down monthly bills without breaking a sweat.

According to the number crunchers at the New York Federal Reserve, a jaw-dropping 14 million homeowners refinanced between spring 2020 and the end of 2021. That’s nearly a third of all mortgage debt out there flipping into new loans—proof that when the refi iron is hot, Americans strike.

Record low mortgage rates spurred homeowners to refinance

Let’s rewind to March 2020: mortgage rates began dropping like leaves in October, unleashing a tidal wave of home loan refinancing. The 30-year fixed-rate did its best limbo impression, setting record lows not once, not twice, but 17 times between pandemic kickoff and January 7, 2021—eventually hitting the almost mythical number of 2.65%.

Sure, rates nudged up through 2021, but let’s not pretend 3.11% isn’t still music to a homeowner’s ears (especially compared to pre-pandemic averages). Borrowers raced to lock in refinance rates. Most landed somewhere in the impressively low 2s or 3s, and if you heard someone boast they snagged a rate starting with a “1,” well… believe them. Some of us are still jealous.

Refinancing led to monthly savings and extra cash

About 9 million homeowners during this bonanza chose the classic “rate and term” refi—basically the financial equivalent of trading in your old clunker for a shiny, fuel-efficient model. By snagging lower mortgage rates, they shaved a cool $220 off their average monthly payment. That’s $2,640 a year, or, as I like to think, “two months of groceries and a beach weekend.”

Meanwhile, around 5 million Americans rolled the dice with a “cash out” refinance, tapping into their skyrocketing home equity like a personal piggy bank. The average loot? $82,000 per homeowner! Of course, there’s no such thing as free money—monthly mortgage payments went up by about $150, but that’s the price of having a little extra cash to throw at kitchen remodels, investments, or the world’s largest emergency fund.

CoreLogic says collectively, American borrowers gained more than $3 trillion in home equity in 2021 alone. By September 2022, the average homeowner was sitting on a record $300,000 in equity. In this game of real estate Monopoly, everyone seemed to pass “Go” with pockets full.

Homeowners most likely to refinance mortgages

When mortgage rates were scraping the basement, Black Knight analytics figured that 20 million homeowners could profit from refinancing. But, as with all-too-good-to-be-true deals, not everyone pounced.

About a third of mortgages issued from 2015 onwards were refinanced. Jump back to 2010–2014, and only 17% of those loans made the transition. For the pre-2010 crowd? A humdrum 9%. Why the holdouts? Well, for folks with tiny balances, the upfront cost of switching home loans might actually cancel out any savings. Plus, refinancing resets your loan clock—imagine thinking you’re nearly free and clear, only to tie yourself back up for years. Not a popular move if you’re already paying your mortgage with one foot out the door.

Size mattered, too: nearly half of 2020–2021’s refinanced loans were sitting in the $400,000–$500,000 range. If you had a hefty balance, it really paid to find a better rate.

From refi boom to refi bust

All good things must come to an end, right? By 2022, reality hit hard as mortgage rates started their sharp climb, effectively slamming the brakes on the refinancing joyride. Suddenly, the refi party lights dimmed.

As 2021 wrapped, rates still hovered in the pleasant low-3% territory, with refinance applications responsible for over 60% of all mortgage activity (thanks, Mortgage Bankers Association, for keeping tabs). Fast-forward to today, and that number’s dropped below 30%. Why? Maybe because average mortgage rates have nearly doubled, leaping from 3.22% to 6.35%. Yikes.

With mortgage rates now feeling more, let’s say, “traditional,” refinancing just doesn’t have the sparkle it did in 2020. And after millions locked in deals at those almost comical lows, who’s eager to trade up? Not many, it turns out.

More from Money:

• Best Mortgage Refinance Companies of May 2023
• Half of Homes on the Market Are Selling within 2 Weeks — Despite High Mortgage Rates
• 10 Cities Where the Housing Costs Are Cooling Off Fast