Premier Member Editorial: The Refinancing Dependency Crisis–What Recent Homebuyer Data Reveals About Market Risk

Ethan Winchell is president and co-founder of Truework, San Francisco

Nearly two-thirds of younger buyers are banking their financial futures on the ability to refinance to lower rates. That’s what we learned in our recent survey of 1,000 homebuyers who purchased within the past 24 months. While the mortgage industry has always operated on assumptions about borrower behavior, this data reveals a more fundamental shift: borrowers’ financial readiness is increasingly tethered to their confidence in refinancing. Lenders aren’t just facing a rate environment problem—they’re facing a readiness gap.

Since our survey, the Fed has cut rates, and mortgage rates are beginning to inch downward. Refinancing has become an increasingly pressing question for recent buyers—many are now wondering if it’s the right moment to make a move. At the same time, new buyers are likely to enter the market with the same hope of refinancing down the line, especially as competition keeps home prices elevated.

The scale of the problem

In the Truework Recent Homebuyer Survey (conducted this summer via research partner Prodege), when we asked recent homebuyers about their refinancing expectations, the generational divide was stark. Sixty-four percent of Gen Z buyers and 65% of Millennials told us that refinancing to lower rates is important or extremely important to their financial well-being. Compare that to just 32% of Baby Boomers, and you’re looking at a 32-percentage-point gap, the largest generational divide we found in the entire survey.

Overall, 56% of all recent buyers consider refinancing important to their financial security, with one in four calling it “extremely important.” Younger buyers, many purchasing near the top of their affordability range, are structuring their financial futures around expectations rather than capacity. As mortgage professionals, we need to ask ourselves: what happens if rates don’t drop enough to justify a refinance?

The unique challenges today’s buyers face

Previous generations typically purchased homes expecting to maintain their initial mortgage terms. They budgeted for their current payment and built equity over time. Today’s younger buyers are making a fundamentally different calculation, essentially placing leveraged bets on Federal Reserve policy decisions.

This strategy carries risks that many buyers may not fully appreciate:

• Policy uncertainty is real. With the Fed’s recent rate cut in September 2025, monetary policy is tilting in favor of borrowers. But the Fed made clear that future moves remain data-dependent, hinging on inflation, employment, and global economic stability. Mortgage rates also don’t track the Fed directly—they follow broader bond market dynamics—so even with cuts, borrowers shouldn’t assume a rapid or dramatic return to the 4–5% range many are hoping for.
• Timing matters. Even if rates trend downwards, most financial advisors recommend refinancing only when you can reduce your rate by at least 1%. With closing costs running into thousands of dollars, minor rate improvements don’t justify the expense. Borrowers need meaningful rate drops to make refinancing worthwhile—and timing that optimally requires expertise many homeowners lack.
• Qualification isn’t guaranteed. Future refinancing eligibility depends on maintaining employment, income levels, and credit scores. Over a typical 5-7 year timeline before refinancing makes financial sense, much can change in a borrower’s life. Job loss, income reduction, or credit issues could lock borrowers into rates they can’t afford long-term.

 

What the data tells us about buyer readiness

Changing rates have added new layers of uncertainty to an already stressful process. And for many recent buyers, that uncertainty exposes bigger gaps—in understanding, preparedness, and confidence—that make it even harder to know when or how to act.

• Knowledge gaps persist. Eleven percent of all buyers lack confidence in understanding their mortgage terms, with that number jumping to 15% among Millennials. Perhaps most concerning: 20% of single women reported lacking confidence in understanding mortgage terms versus just 10% of single men—a two-to-one gender disparity that suggests our industry isn’t effectively communicating with all borrower segments.
• Stress is universal. Ninety percent of recent buyers experienced stress during the process, with 30% reporting “significant stress.” Younger buyers showed higher stress levels (33% for Gen Z and Millennials), and regional differences were striking—39% of West Coast buyers reported significant stress compared to 27% in the South.
• Buyers are surprised by costs. Twenty-four percent of buyers were surprised by additional costs like agent fees, inspections, and closing costs. In an era of unprecedented information access, these persistent surprises suggest either information quality issues or cognitive overload preventing borrowers from processing cost implications effectively.

The implications for lenders

The recent Fed cut could ease some of these risks by opening the door for certain borrowers to refinance sooner. However, relief won’t be universal—borrowers who stretched their budgets assuming a much steeper drop may still be vulnerable if rates don’t fall far enough or fast enough. The sustained concentration of refinancing-dependent buyers creates several concerns for mortgage lenders:

• Rate lock-in effects could reduce expected future transaction volumes as borrowers are still trapped in homes they can’t afford to leave. We’ve already seen this dynamic play out with borrowers holding sub-3% rates from 2020-2021. Now we’re creating a new cohort of borrowers stuck at 6-7% rates.
• Default risk increases if economic conditions deteriorate and borrowers can’t refinance out of payments that were only sustainable with future rate relief. When buyers stretch to afford current rates with the expectation of refinancing, any disruption to employment or income becomes immediately critical.
• Servicing complexity grows as lenders manage borrowers with diminished financial flexibility. Borrowers counting on refinancing who can’t execute face difficult choices about how to manage their obligations.

 

A call for better risk assessment

As an industry, we need to evolve how we evaluate borrower risk and scenario planning. What if rates fall modestly, significantly, or stall? Traditional underwriting focuses on current ability to pay, but when two-thirds of younger borrowers are explicitly planning for different future terms, we’re not capturing the full risk picture. We need to assess how prepared they are for tomorrow.

Some questions worth considering:

• How do we stress-test borrowers whose affordability depends on future refinancing?
• Should we be documenting borrower refinancing expectations and plans as part of the loan file?
• How do we counsel borrowers about the risks inherent in rate-dependent strategies?
• How do we model multiple rate scenarios in a way that empowers borrowers to make smarter financial decisions?
• What role should borrower financial literacy play in risk assessment?

The mortgage industry has weathered many cycles, but this refinancing dependency represents something new—a generation of borrowers whose homeownership sustainability depends on external factors they can’t control. Understanding this dynamic and adapting our practices accordingly isn’t just good risk management; it’s essential to the long-term stability of our market.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)