Top 3 Borrower Motivations Driving Surge In Refinance Loan Volume

2021 is projected to be another incredible year in the mortgage industry, with refinance loans fueling loan application volume and borrower inquiries. Based on data from Freddie Mac’s “Refinance Trends In 2020” report, homeowners who closed on refinance loans were typically driven by one of three motivations: tapping established equity, shortening loan terms or reducing monthly mortgage payments. Even with current rate fluctuations, refinance loan volume continues to represent the majority share of all mortgage loans at 62.9% for the week of March 17. As spring unfolds, 13 million homeowners could still be candidates for refinance mortgages based on current and projected interest rates.

1. More Homeowners Tapped Their Equity Through Cash-Out Refinance Loans

In 2020, cash-out refinancing among homeowners hit its highest levels since 2007. The combination of economic uncertainty resulting from COVID-19 coupled with more time spent at home prompted many homeowners to seek funds for financial security cushions or liquid assets to use toward home improvements, redecorating and renovations. Orla McCaffrey of The Wall Street Journal reported that, “U.S. homeowners cashed out $152.7 billion in home equity last year,” and data from Freddie Mac’s Quarterly Refinance Statistics showed that in Q4 2020, cash-out borrowers represented 38% of all refinance loans. As a result, cash-out mortgage refinance volume rose to $48.4 billion by the end of 2020. 

2. One-Quarter Of Refinancers Shortened Loan Terms

2020 was the year that made consumers value the idea of “home” in a whole new way. Instead of serving as just a residence, during periods of quarantine, the concept of home shifted to represent safety and security. The rise of distance learning, working from home and time spent indoors made consumers reconsider the importance of owning their homes. 

While the fixed-rate mortgage loan continues to represent the largest share of originations, nearly a quarter of homeowners opted for shortened loan terms during their refinances. In 2020, the difference between the 15-year fixed rate loan and the 30-year fixed rate loan averaged a 0.52%, meaning homeowners who felt financially secure could capitalize on the positive interest rate environment and refinance to 15-year terms.  

3. Refinance Borrowers Were Motivated By Monthly Savings Opportunities 

At the end of Q1 2020, many consumers became concerned with financial security and the drive to cut expenses, reduce spending and maintain emergency savings increased. As economic uncertainty and unemployment rose, consumers capitalized on record low mortgage interest rates and cut monthly mortgage costs. In Q4 2020, homeowners who refinanced were able to lower their mortgage interest rates by an average of 1.25%. In 2020, the average annual mortgage payment savings for borrowers who refinanced into 30-year fixed loans and did not pull cash out ranged from $2,800 to $3,500. By securing a lower mortgage interest rate for refinancing to remove private mortgage insurance (MI), many borrowers successfully reaped the benefits of a refinance loan.

Deploy Digital Marketing & Advertising That Aligns With Borrower Motivations

According to Freddie Mac data for the week of March 18, the average interest rate for the 30-year fixed rate mortgage loan was 3.09%. While interest rates have slightly increased since the start of the year, if mortgage interest rates stay near 3% as anticipated, they will still reflect historic lows. The motivations that inspired borrowers to take action will remain relevant drivers in the mortgage market. Affordability is projected to stay a top concern for borrowers, which means refinancing is likely to be a viable option to help homeowners achieve their financial goals. 

Describing the needs of modern borrowers, executive vice president of corporate strategy at Ellie Mae Joe Tyrrell said, “Borrowers today expect a simple online application that guides them step-by-step through the loan process. But high-tech and human-touch are equally important. Borrowers still want to speak with someone knowledgeable when they have questions or concerns.” Even as the effects COVID-19 begin to shift, consumers will likely continue relying on online research and digital tools to initiate their refinance loan process. 

Digital marketing and advertising across first-party channels can help mortgage brands resonate with consumers based on their values and needs. Mortgage marketers and brands that focus on their digital presence can elevate their first-party channels to better connect with prospective refinance borrowers. Mortgage marketers that implement consistent messaging, relevant imagery, clear and effective CTAs and a seamless virtual journey across their first-party channels – from website and landing pages to social media and email marketing – will position themselves to connect with borrowers seeking lenders and mortgage solutions online. 

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