Ellie Mae: Millennial Refinance Activity on the Rise as Interest Rates Drop

Ellie Mae, Pleasanton, Calif., said plunging interest rates sparked a jump in refinances among Millennial homeowners.

The monthly Ellie Mae Millennial Tracker reported the average interest rate on all 30-year loans closed by millennials in January dropped to 3.94%, down slightly from 3.95% in December. This decline marks a deviation from the months prior, as average rates rose month-over-month in both November and December.

January also saw refinance share among millennials jump up after consecutive months of decline. During the month, 31% of loans closed by millennials were refinances, up from 27% in December. For conventional loans, which represented 71% of total loans closed in January by this demographic, refinance share increased from 33% to 38% month-over-month as average rates for this loan type dipped slightly.

“January was a favorable market for both millennial homebuyers and homeowners looking to capitalize on lower interest rates by refinancing their mortgages,” said Joe Tyrrell, chief operating officer with Ellie Mae. “With the purchase power of millennials increasing and inventory still tight across the country, we expect millennials to continue to search outside of major metropolitan areas, where there is more inventory, when making their homebuying decisions.”

The Millennial Tracker now divide millennials into two groups: older millennials – borrowers between 30 and 40 years old, and younger millennials – borrowers between 21 and 29 years old. January data show the refinance share among older millennials was 38% compared to 17% for younger millennials. Younger millennials received an average interest rate of 3.9%, lower than older millennials at 3.95% as millennials between 21 and 29 were more likely to take advantage of FHA loans. According to the January data, 31% of all loans closed by this group were FHA loans, 11 percentage points higher than older millennials.

“Millennials are expected to fuel the housing market in 2020 and it’s vital that lenders understand how to market to and work with this demographic,” Tyrrell said. “We know that millennials prefer working with lenders who provide a blend of high-touch human interaction and automated processes, but as this demographic grows and ages up, the most successful lenders will be those that understand the nuances between older and younger millennials and adjust their strategies based on this insight.”