Mortgage prepayments hit 3.5-year high as borrowers rush to refinance

Mortgage prepayments climbed to their highest level in three and a half years in October as lower interest rates prompted more borrowers to refinance, according to ICE Mortgage Technology’s First Look report.

The single-month mortality rate, which measures prepayments, rose to 1.01%, up 16 basis points from a year earlier, when mortgage rates were at similar levels.

“Softening mortgage rates expanded the pool of refinance candidates in October, pushing prepayments to their highest level in three and a half years,” said Andy Walden, head of mortgage and housing market research at ICE.

“This trend was largely driven by people who purchased homes at elevated rates in recent years seizing the opportunity to lower their monthly payments.”

Despite the increase in prepayments, overall mortgage performance remained solid. The national delinquency rate — loans 30 or more days past due but not in foreclosure — fell 7 basis points from September to 3.34%. That’s 11 basis points lower than a year ago and 53 basis points below the October 2019 level, prior to the COVID-19 pandemic. 

Both early-stage (30-day) and serious (90-day-plus) delinquencies improved in October, according to the data released Tuesday. 

Foreclosure activity also declined month over month as total U.S. foreclosure starts fell 9.84% from September to 38,000. But starts remain elevated compared to last year, rising 32.4% year over year. 

The number of properties in foreclosure pre-sale inventory rose by 4,000 from September to 226,000 — up 37,000 from October 2024. Federal Housing Administration (FHA) foreclosures increased by 50% year over year, the report shows. 

“While foreclosure activity has ticked up, levels remain historically low,” Walden said. “This uptick is driven by a rise in FHA foreclosures along with the resumption in VA foreclosures following last year’s moratorium.”