Over the last year, a dramatic drop in interest rates on 30-year notes has led to an active refinance market for millennials. According to the latest Ellie Mae Millennial Tracker, interest rates on all 30-year notes fell from 4.86 percent in June 2018 to 4.39 percent in June 2019.
This figure marks the lowest average rate for borrowers of this generation since January 2018. Millennials were quick to take advantage of the lower rates, and the share of refinances increased from 8 percent to 14 percent of all loans closed by members of this generation during the same period.
Among all 30-year loans closed by millennials, interest rates on Veteran’s Administration (VA) loans had the largest year-over-year decrease, dropping more than half a point from 4.54 percent to 3.97 percent. Rates on Federal Housing Administration (FHA) loans fell from 4.93 percent to 4.49 percent while rates on conventional loans saw a near half-point reduction, from 4.84 percent to 4.35 percent, Ellie Mae reports.
Additionally, from June of last year to June 2019, share of refinances among millennials rose in all three major loan categories. Twenty-seven percent of VA loans were refinances this June compared with 18 percent the year prior. The share of millennials refinancing FHA loans increased from 4 percent to 6 percent over the last year and the share of conventional refinances jumped from 9 percent to 17 percent.
“Savvy millennials looking to lock in lower interest rates on their mortgages have helped drive a surge in refinance activity,” Ellie Mae Chief Operating Officer Joe Tyrrell said in the report. “While the Federal Reserve’s rate cut doesn’t necessarily mean that rates on mortgages will continue to drop, we’ll be keeping a close eye on its impact on both the refinance and overall mortgage market as we do anticipate that it will affect consumer behavior, including millennials who look to lower their payments.”
Ellie Mae also revealed that although shares of FHA and VA loan refinances are up in June 2019, the overall share of FHA loans has decreased, and the share of VA loans has remained flat. FHA loans accounted for 27 percent of all loans closed by millennials in June 2018, but that figure fell to 24 percent a year later. Shares of VA loans remain unchanged at 2 percent.
“There is and has been a massive opportunity for lenders to educate potential homeowners on the loan options available to them,” Tyrrell said. “For example, borrowers with lower FICO scores can take advantage of FHA loans to make homeownership a reality, but the overall awareness that this loan type exists needs to increase.”
With an increased investment in technology, Ellie Mae’s report concluded the time to close has dropped across the board year-over-year. Average time to close on all loans for millennials has dropped two days while average time to close on refinance and purchase loans has dropped four days and one day, respectively.