Refinance activity reached an all-time high in March for Millennial borrowers.
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Near rock-bottom interest rates in March spurred a record wave of refinance applications by Millennial borrowers, according to the latest Ellie Mae Millennial Tracker. The surge sent the refinance share – the percentage of all loans closed during the month that were refinances – for Millennials up to 38%, while the average interest rate for all 30-year loans closed by Millennials in March fell to 3.66%, the lowest average rate since May 2016 and down from 3.86% in February.
The refinance share increased for the third consecutive month and reached the highest mark since mortgage software giant Ellie Mae began tracking this data in 2016.
“The Federal Reserve cut its target interest rate to near zero in March, causing interest rates to drop and giving savvy Millennial homeowners the opportunity to refinance to more favorable rates,” said Joe Tyrrell, chief operating officer at Ellie Mae.
Added Tyrrell, “That pattern follows a trend we’ve seen in our data over the last 12 months, but what’s more surprising is time-to-close numbers decreasing despite the surge in refinance activity and the limitations lenders are facing as a result of COVID-19. Technology is now more important than ever, and lenders investing in the solutions necessary to manage their pipelines virtually are seeing success.”
Despite the increase in refinance activity, the average time to close fell two days month-over-month to 36 from 38 days. Average time to close for all loans dropped to 39 days from 41 during the same period.
Millennials’ share of mortgage refinance activity rose four percentage points from February. Following an ongoing trend, refinance share increased as interest rates declined.
The Ellie Mae Millennial Tracker divides Millennials into two categories. Older Millennials consist of borrowers 30 to 40 years old, and younger Millennials are borrowers 21 to 29 years old.
The refinance share for older Millennials in March was 46%, up 5% month-over-month and more than double the refinance share of younger Millennials at 21%. The average interest rate for all 30-year loans closed by Millennials in March was 3.66%, the lowest average rate since May 2016 and down from 3.86% in February.
Younger millennials were more likely to opt for non-conventional loan types. In March, FHA loans accounted for 27% of all loans closed by younger Millennials compared with 16% for older Millennials.
The coronavirus pandemic has triggered wild fluctuations in mortgage rates. “COVID-19 continues to have a significant impact on both borrowers and lenders,” said Tyrrell. “A large percentage of older Millennials, who are more likely to already own homes, are refinancing their mortgages to lock in lower interest rates. Younger Millennials are refinancing at similar rates, but for this demographic, we’re also seeing first-time home buyers take advantage of low rates as well as the availability of non-conventional loan types, which allow for lower down payments, helping them make the American Dream of owning a home a reality.”
He added, “Going forward, we’re keeping a close eye on how this will affect where Millennials choose to settle down. Before COVID-19, we were already seeing Millennials move away from cities and into areas with more inventory and a lower cost of living. It’s possible that we’ll see this trend accelerate as we move into the summer months.”
Sarah Pierce, head of sales for Better.com, pointed out that 85% of the online mortgage lender’s borrowers are under 45. “We have seen a 124% growth in refinancing since COVID-19 began,” she said. “This data suggests the digital mortgage process isn’t just making the experience more convenient, it’s also enabling tech-savvy Millennials to become homeowners.”
Lenders are navigating rising consumer demand, especially for refinances, at a time when in-person meetings between borrowers and loan officers are not an option, explained Tyrrell.
“Our research shows that today’s borrowers prefer a high-touch approach, and lenders are meeting this customer expectation by investing in technology that allows them to communicate with their customers in a safe, efficient and effective manner,” he said. “Offerings like eClosing and virtual verifications will play a big role in helping lenders maintain great relationships with their customers while social distancing measures are still in effect.”