• Recent increases in mortgage rates mean approximately 275,000 fewer households are now positioned to benefit from refinancing compared to just a week ago. This shift has resulted in a collective potential loss of around $6.2 billion in refinancing savings over the next five years.
• However, for those borrowers who bought in 2023 at a mortgage rate of 7.6% or higher, refinancing at today’s 6.6% rate could still save them an average of $391 per month, or $23,460 over the next five years.

Hundreds of thousands of homeowners who bought their home in 2023 may be eligible to refinance at a lower rate. Mortgage rates for 30-year fixed loans fell from an average of 6.8% over 2023 — and a peak of about 7.8% last fall — to approximately 6.1%, as of October 3.

A Zillow analysis of 2023 Home Mortgage Disclosure Act (HMDA) data shows that more than 434,000 home buyers in 2023 would likely have benefited from a refinance last week at a 6.1% mortgage rate. With rates having already shot back up to 6.6%, less than 160,000 home buyers would have a refinance pay off at the higher rate. That means about 275,000 borrowers missed out on the potential refinance savings – a total five-year loss of more than $6 billion combined for those homeowners. 

How much homeowners can save

Recent fluctuations in mortgage rates are causing potential monthly payments to shift quickly for home buyers. This volatility also impacts households who purchased homes previously, changing the math on whether refinancing could help lower their monthly payments.

More than half of borrowers who bought in 2023 paid an interest rate higher than today’s average rate of 6.6%. However, it is essential for borrowers to consider the costs associated with refinancing, including origination fees and closing costs, which can offset potential savings. Knowing the breakeven timeline is also critical. 

The specific rate improvement for which it makes sense for a homeowner to refinance depends on the borrower’s situation. For example, if a homeowner intends to sell in five years, it might not make sense to refinance, and only save $100 per month, if the upfront origination cost is $6,000. If the monthly savings are greater, or the borrower intends to hold the new loan longer, that calculus would change. 

That said, the lending industry’s rule of thumb is that refinancing may be worth considering if the mortgage rate drops by at least one percentage point. Using this threshold as a guideline, about one in ten home buyers from 2023 may find refinancing advantageous. 

How much a household could save depends on how much their mortgage rate improved, and their loan size. For a hypothetical U.S. homebuyer who bought in October 2023, around peak interest rates, the typical mortgage payment was $1,989, assuming a 20% down payment when purchasing a typical U.S. home, as measured by the Zillow Home Value Index (ZHVI). Should these households secure a rate of 6.6%, they would save $190 on their monthly payment – down from savings of $282 per month had they refinanced a week ago at 6.1%.  

In ultra-expensive San Jose, where the typical monthly payment for a home bought in October 2023 was $8,229, the estimated savings from refinancing would be significant – $785 per month. For a lower-priced metro like Pittsburgh, where the typical mortgage payment was $1,188 last October, estimated savings from refinancing is a more modest $113 per month.

Future considerations for recent home buyers

As the recent rise in mortgage rates shows, there is no guarantee that mortgage rates will continue to fall even as the Fed cuts its key rate further. Expectations for additional Fed rate cuts are already priced into today’s mortgage rates. If a 2023 homebuyer is eligible for a refinance now, waiting could be risky. If the Fed under-delivers as new data comes in, mortgage rates could rise. 

Recent home buyers should keep an eye on mortgage rates changes and take advantage when refinancing benefits their financial situation. By taking proactive steps to monitor and act on market trends, homeowners can make informed decisions to potentially save on their mortgage costs in the long run.

Homebuyers exploring refinancing can use  Zillow’s refinance calculator to determine if it’s the right time for them. By entering details about their current and future loans and rates, borrowers can evaluate the benefits of refinancing to achieve their financial goals, such as reducing monthly payments, lowering interest rates, adjusting loan terms, removing mortgage insurance, and more.

[1] We cannot confirm the remaining loan balance for the households who bought sometime in 2023. We make the simplifying assumption that the household is refinancing their initial loan balance at today’s rates. Likely, the refinanced loan amount will be slightly smaller than the original, and refinanced monthly payments will be even lower (and monthly savings greater) than what we calculate. 
[2] According to Freddie Mac’s Primary Mortgage Market Survey
[3] Borrowers who bought a primary home using a conventional 30-year loan, with a loan amount greater than $100,000. Loans with small balances face challenges in getting financed, because lenders burdened with fixed costs in originating would need to charge disproportionately high fees compared to the loan amount.
[4] According to Mortgage News Daily’s Rate Index
[5] The HMDA analysis is of actual homebuyers in 2023, where households might not bring forth a 20% downpayment. The Zillow typical mortgage calculations assume a 20% downpayment. The average HMDA loan amount over 2023 is higher than 80% of national ZHVI from October 2023.