With the pandemic and its economic impacts in full effect, the refinance share of closed loans from millennial borrowers rose for the fourth straight month to the highest level since Ellie Mae started tracking the data in January 2016.
The average 30-year interest rate millennials locked in dropped to 3.48% from 3.67% in March and from 4.61% in April 2019. The average closing rate is also a record since Ellie Mae began its tracking.
About 55% of loans closed to millennials in March were refinances, up from 38% month-over-month and a 40 percentage point surge from 15% the year prior. The April 2020 purchase share accounted for about 45% with the remaining 1% unspecified.
"With interest rates reaching historic lows, millennials have the chance to set themselves up for significant savings over the long term and they have moved quickly to seize this opportunity," Joe Tyrrell, chief operating officer at Ellie Mae, said in a press release.
"The refinance spike means lenders are managing crowded pipelines, but they are doing so without the ability to meet face-to-face with borrowers because of social distancing. Lenders that invested in virtual solutions like online borrower portals, e-closing and virtual verifications are capitalizing on this trend and turning this historic appetite for refinances into business growth," he added.
As the economic shutdown and unemployment spiked, lenders took on less risk and that's reflected in the millennial borrower demographics. The average millennial FICO score jumped 10 points in a month to 741 and 20 points year-over-year. At 32.3 years, the average age for millennial borrowers rose a full year from March and over two from April 2019's 30.2 years. Married individuals represented approximately 64% of loans closed compared to 58% in March and 53% the year prior.
"The rapidly changing secondary market, along with the overall economic uncertainty in the United States, has caused lenders to implement stricter credit requirements for loans," said Tyrrell. "For millennials looking to purchase their first home, now more than ever they are learning the importance of exploring different loan types, including those which don't require as high of a credit score as Conventional loans."
Conventional mortgages accounted for about 83% of completed loans to millennials in March, while 14% were Federal Housing Administration loans. Mortgages guaranteed by the U.S. Department of Veterans Affairs accounted for 1%, while other unspecified types of financing constituted the remaining 2%.
Overall, nearly 61% of primary borrowers were male, 28% female and 11% unspecified. The average loan amount increased to $213,990 from $211,535 in March and $191,972 the year prior. It took 40 days to close a loan, a slight uptick from 39 days both a month and year earlier.
When broken down between older millennials (borrowers between 30 and 40 years old) and younger millennials (borrowers between 21 and 29 years old), the splits change.
Refinance share for the elder faction reached 62% in April compared to 31% for the younger group. By loan type, conventional mortgages made up an 86% share for older millennials versus 75% for younger and FHA loans made up 11% and 22%, respectively.
