Rising Mortgage Rates: How Many Homeowners Could Refinance with a Small Rate Drop?

The U.S. Mortgage market is showing signs of increased activity as interest rates stabilize and, in some cases, decline, prompting a surge in refinance applications and a cautious optimism among potential homebuyers. As of January 9, 2026, the average rate on a 30-year mortgage dropped to 5.99%, matching the low from February 2, 2023, according to Mortgage News Daily.

This shift comes after a period of elevated rates, with over 30% of homeowners now holding mortgages with rates above 5%, and roughly 20% above 6%, according to ICE Mortgage Technology. Just four years ago, barely 10% of homeowners had rates exceeding 5%. The recent decline is partially attributed to actions taken by the Trump administration, specifically a plan for Fannie Mae and Freddie Mac to purchase over $200 billion in mortgage-backed securities.

While the full impact of this $200 billion purchase remains to be seen, industry experts suggest it could shave approximately an eighth of a percentage point off current rates, potentially bringing the average 30-year fixed rate to around 6%. Andy Walden, head of mortgage and housing market research at ICE Mortgage Technology, noted that this move is particularly impactful because it targets the rate range – between 6.875% and 6.99% – most commonly secured by homebuyers in recent years.

The potential for lower rates is already translating into increased refinance activity. Applications to refinance a home loan are currently 120% higher than they were a year ago, according to the Mortgage Bankers Association. ICE Mortgage Technology estimates that if rates were to fall to 6%, approximately 5.5 million homeowners could benefit from refinancing, saving at least 75 basis points on their mortgage rate. A further drop to 5.88% would increase that number to 6.5 million.

However, the impact on home sales is more nuanced. The past few years have been characterized by a “rate lock-in” effect, where potential sellers were hesitant to relinquish their historically low mortgage rates. As of the beginning of 2025, roughly 39 million homeowners had rates below 5%, and 12 million below 3%, with approximately 95% of these homeowners choosing to hold onto those rates.

For prospective homebuyers, a 15-basis-point drop in the 30-year fixed rate would translate to roughly $35 in monthly savings on the average-priced home, or the ability to purchase 1.5% more home. While a positive step, Walden described the impact as “not a massive movement” for buyers.

The broader economic context reveals a significant shift from recent years. In 2022, a surge in record-low mortgage rates fueled a refinance boom. However, home sales peaked at 6.12 million in 2022, before falling to a historically low 4.06 million in 2025, remaining largely unchanged from 2024. Current rates, while still elevated compared to the average outstanding rate of 4.4% and the 3.25% levels seen in January 2022, are beginning to offer some relief to both potential refinancers, and buyers.

The current rate for a 15-year mortgage is 5.38%, the lowest level since October 2024.

Nine percent of homeowners are currently refinancing their mortgages, a 111% increase compared to the same week a year ago, according to Rate.com. Reasons for refinancing extend beyond simply securing a lower rate, and include changing loan terms, accessing home equity, and removing private mortgage insurance (PMI).