Weaker interest rates opened the door to refinancing mortgages for 4.8 million borrowers in January, the highest level in four years. However, affordability levels remain below pre-pandemic levels.
While mortgage rates are still a long way from the oft-touted magic number of 5%, they were phased down throughout January, pushing affordability to its highest level since 2022.
For the week of January 9, the average interest rate on a 30-year fixed mortgage fell to 6.04%. The decline increased the number of homeowners eligible for refinancing by 20 percent, affecting 4.8 million people, according to Intercontinental Exchange (ICE), a global technology and data company. Despite the recent interest rate increases, the company said current trends are still an improvement compared to interest rates of 6.875% to 6.99% for 1.3 million homeowners.
“Even a small rate reduction toward 6% can significantly increase affordability, especially for homeowners who can refinance into lower monthly payments,” Andy Walden, ICE’s head of mortgage and housing market research, said in a written statement Monday. “As interest rates reached 6.04% on January 9th…affordability reached its highest level in four years.”
Due to the interest rate reduction, the monthly principal and interest payments required to purchase an average-priced home decreased by 7%, or $164, to $2,091. This payment amount is equivalent to 27.8% of a household’s median monthly income. This is just a few points off the widely accepted affordability standard of 30%. But ICE said there is still plenty of room to push down the housing price-to-income ratio.
The current ratio is 4.8:1, well above the pre-pandemic average of 4:1.
“Home affordability continues to face structural challenges, with home prices remaining high relative to incomes and with wide disparities across regions and renter groups,” Walden said. “To return to the pre-pandemic house price-to-income ratio, household incomes would need to rise by just over 15%, assuming house prices remain flat.”
In terms of refinancing, an increasing number of homeowners are struggling with negative equity.
Negative equity interest rates have reached their highest level since early 2018, leaving more than 1.1 million homeowners underwater by the end of 2025. The majority of these homeowners purchased after 2022 and took out Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loans. The South has been disproportionately affected, with more than one in 10 mortgages in some of the region’s major markets underwater.
Bob Hart, president of ICE Mortgage Technology, said the report reflects stress points in the market that lift some borrowers and sink others.
“Today’s market is full of crosscurrents, with borrowers reacting quickly to interest rate changes, improving affordability for some, but not others, and increasing credit stress for some,” he said.
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