As mortgage interest rates continue to climb, mortgage refinancing applications remain in decline after refinancing exploded in 2020 and 2021 during the pandemic.
Most commonly, mortgage refinancing allows a homeowner to replace their existing loan with a new loan at a lower interest rate or different term length. Certain types of refinancing agreements can also enable the homeowner to receive cash in exchange for accrued home equity. The mortgage refinance industry is acutely sensitive to changes in the overall U.S. economy, so as economic conditions continue to change, the mortgage refinancing landscape will shift as well.
Composition of U.S. Mortgage Refinances
Mortgage refinances returned to pre-pandemic levels in 2022, but a majority of them were cash-out
Source: Construction Coverage analysis of Home Mortgage Disclosure Act data | Image Credit: Construction Coverage
Due primarily to historically low interest rates, mortgage refinances skyrocketed in 2020, increasing a whopping 145% from 2019 and remaining at similar levels in 2021. However, in 2022, mortgage refinances regressed back to pre-pandemic levels—declining nearly 70% to a total of approximately 2.3 million refinances. Notably, the composition of mortgage refinances shifted as well. Driven by a historic runup in home sale value during COVID, nearly 54% of all mortgage refinances in 2022 were cash-out as homeowners looked to draw on their newfound home equity.
Most Common Denial Reasons for Mortgage Refinance Applications
Inadequate debt-to-income ratio is the most common reason for denied refinancing
Source: Construction Coverage analysis of Home Mortgage Disclosure Act data | Image Credit: Construction Coverage
Although refinancing a mortgage can help reduce monthly payments or provide some much needed liquidity, not all refinancing applications are approved. The most common reason for refinancing denials was an inadequate debt-to-income ratio, cited in nearly 35% of all refinancing applications that were denied. Credit history was the second most common reason for refinancing denials, mentioned in over one in four denials.
Mortgage Refinances by Location
Mortgage refinancing is most popular in Utah, Idaho, and Arizona
Source: Construction Coverage analysis of Home Mortgage Disclosure Act data | Image Credit: Construction Coverage
The proportion of households that refinance their mortgage varies considerably across regions of the country. In the U.S. overall, there were 42.1 mortgage refinances approved per 1,000 households with mortgages in 2022. Refinancing is much more common in the western U.S. where home prices have appreciated rapidly over the past decade. Out of all 50 states, Utah had the most mortgage refinances at 70.3 refinances per 1,000 households with a mortgage, followed by Idaho (63.4), and Arizona (56.2). Conversely, at just 26.0 refinances per 1,000 mortgaged households, Alaska had the fewest.
At the metropolitan level, many of the same trends hold true. Utah is well represented, with the Salt Lake City metro ranking first among large metros, Provo-Orem claiming the top spot among midsize metros, and St. George, UT and Logan, UT-ID ranking second and fourth, respectively, among small metros.
This analysis was conducted by researchers at Construction Coverage, a website that compares construction software and insurance, using data from the Federal Financial Institutions Examination Council and the U.S. Census Bureau. Researchers ranked states according to the number of mortgage refinances originated in 2022 per 1,000 households with a mortgage. Only conventional refinances for single family dwellings were considered for this analysis.
Here is a summary of the data for South Dakota:
- Mortgage refinances per 1k households with a mortgage: 34.8
- Total mortgage refinances: 4,816
- Share of mortgage refinances that are cash-out: 50.6%
- Median refinance loan amount: $155,000
- Mortgage refinance approval rate: 85.2%
For reference, here are the statistics for the entire United States:
- Mortgage refinances per 1k households with a mortgage: 42.1
- Total mortgage refinances: 2,165,306
- Share of mortgage refinances that are cash-out: 56.5%
- Median refinance loan amount: $205,000
- Mortgage refinance approval rate: 78.2%
For more information, a detailed methodology, and complete results, see U.S. Cities With the Most Mortgage Refinances on Construction Coverage.
