This increase in refinance activity from 2024 to 2025 is the result of a slight decline in interest rates, which hit a high of 7.8 percent in November 2023 but fell as low as 6.1 percent in 2025.

In 2025, borrowers who extracted home equity through cash-out refinancing tended to be older and have lower incomes relative to purchase loan borrowers. Older homeowners with lower incomes, but greater housing wealth, could be more likely to tap their home equity as a source of liquidity, particularly as high interest rates and declining affordability make downsizing less attractive. But obtaining a cash-out refinance loan is also challenging, as reflected in the high denial rates. 

In contrast, households that completed rate-and-term refinances had higher incomes, on average, than both purchase and cash-out borrowers, with average property values exceeding $670,000. The average age among these households was only three to four years older than that of purchase borrowers, suggesting many are recent buyers who are now refinancing into lower interest rates than when they first purchased their homes.

High interest rates have kept DTI ratios high, pushing borrowers to put more down on higher-value homes

Since 2021, interest rates have had a ripple effect on affordability, increasing monthly mortgage payments and putting upward pressure on home values.

The increased cost of purchasing a home is reflected in the average income of homebuyers, which has risen much faster than the average income for all households. According to the US Census Bureau, the average household income increased 16.7 percent between 2021 and 2025, while the average household income of borrowers who purchased homes increased 28.6 percent.

DTI ratios, which measure income relative to monthly mortgage payments, are a leading indicator in mortgage underwriting for whether a borrower can afford their home. The share of purchase mortgages with DTI ratios over 45 percent was 30.6 percent in 2025, significantly higher than in 2021 (19.3 percent). This means recent homebuyers faced higher housing costs relative to their income compared with owners who bought homes before 2022.

The new HDMA data also reveal that homebuyers are trying to lower their monthly costs by spending more at closing. The median amount spent on discount points, which borrowers use to reduce interest payments, increased from $1,224 in 2021 to $3,000 in 2024. The amount then fell in 2025 to $2,588 as interest rates declined slightly. 

In addition, the share of borrowers with loan-to-value ratios up to 80 percent has hovered around 38 percent since 2022, compared with 35.9 percent in 2021. The combination of higher monthly costs and paying more cash at closing means that households with higher incomes and greater wealth were more likely to buy in 2025. 

DTI ratio was the primary reason for loan denials in 2025, while insufficient cash for closing and credit score were highest among young applicants

In 2025, 14.5 percent of purchase mortgage applications were denied, compared with 12.4 percent in 2021. DTI ratio was the most common denial reason and was cited in 39 percent of all denials. This was more common for loan applicants older than 65, given this population’s increased likelihood of experiencing income declines because of retirement.

For applicants younger than 35, credit score was the most frequently cited reason for a purchase denial, likely because younger applicants have had less time to build sufficient credit. Among young applicants, insufficient cash to cover closing costs was more often cited as the reason for denial (18 percent), compared with applicants older than 65 (13 percent).

Why these trends matter

As the 2025 HMDA data show, persistently high interest rates and home prices are continuing to make homeownership less affordable. These conditions are reshaping who can access homeownership, disproportionately favoring high-income households while creating steeper barriers for first-time and young buyers.

This could lead potential homebuyers on the margins of affordability to postpone their entrance into the housing market. For younger borrowers and those with low incomes, delaying a home purchase can have long-term effects on their ability to build wealth. The earlier a borrower enters homeownership, the greater their home equity will be by retirement age.