Refi boom gains steam as mortgage rates continue to decline

February data shows the latest refi boomlet has the wind at its back if interest rates manage to maintain a consistent downward trajectory.

With mortgage rates regularly dropping largely due to economic uncertainty, rate-and-term refinance transactions jumped 39.2% on a monthly basis, according to the latest Market Advantage report from Optimal Blue. Compared to February last year, activity was up 118.5%.

As they demonstrated during similar stretches in 2024, homeowners proved ready to take advantage at an opportunity to improve affordability on their end. The latest numbers represented a turnaround from January when rates headed in the opposite direction, and rate-and-terms fell 19.9% from the prior month as a result.    

"Interest rate improvement, while marginal, is attracting refinance activity as homeowners who bought at higher rates work the numbers and find they can reduce their monthly payments or tap into home equity," said Brennan O'Connell, director of data solutions at Optimal Blue, in a press release.

After ending January at 6.95%, the 30-year conforming fixed-rate mortgage declined by almost 20 basis points to 6.76% in the final week of February, according to data from Freddie Mac. 

The increase in rate-and-term refinances drove overall lock volume up by 7% between January and February, Optimal Blue said. 

The drop in mortgage rates provided a smaller boost for cash-out transactions, which rose 4.4% month over month, after an 8.9% bump in January. Total activity was higher from February 2024 by 29.4%, though. 

The pace of purchase volume growth also slowed to 3.8% from 15.9% in January despite rate movements. Volumes finished 4.8% below levels of one year earlier, while purchase lock counts were off by approximately 9%.

While lower, interest rates are still more than double early 2022 marks, and prices continue to keep some borrowers hesitant even with signs of pent-up demand potentially spurring activity. 

"The upcoming home buying season will reveal whether purchase demand is poised for a rebound or if elevated rates will continue to keep buyers on the sidelines," O'Connell said. 

Still, February numbers offer some encouraging news for lenders to support reports of building momentum for refi activity if interest rates remain favorable. Redfin recently reported over 17% of homeowners with rates at 6% or higher, making them prime future refinance candidates. A late summer rate downturn in 2024 drove similar spikes in refinance transactions.

Meanwhile, the borrowers who refinanced lifted credit-score quality. The average score for rate-and-term customers came in four points higher at 732. Cash-out customers in February had average scores of 695, two points higher than in January.