Lower mortgage rates at the end of 2025 prompted a refinance rush among current homeowners, helping boost prepayment rates to their highest level in three years, according to a new report from ICE Mortgage Technology.
The monthly mortgage prepayment rate rose to 0.91% in December, just below the 3.5‑year high set in October, ICE reported in its First Look December 2025 report.
“December’s numbers show that lower interest rates drove refinance activity and prepayments to near multi-year highs,” said Andy Walden, head of mortgage and housing market research at ICE.
The average contract interest rate for 30-year fixed mortgages in December fell 2 basis points to 6.3%, the lowest level of 2025. Although refinance applications fell 5.3% from the previous month, refinance applications surged 98.6% compared to December 2024 on the heels of lower rates, according to an analysis of Mortgage Bankers Association data from the National Association of Home Builders (NAHB).
For homeowners wondering about whether it makes sense to refinance, experts caution not to get fixated on a magic interest rate. Instead, experts suggest focusing on whether a refinance tangibly improves your finances, such as creating more wiggle room in your budget, lowering your interest payments, consolidating high-interest debt with a cash-out refinance or shedding expenses like mortgage insurance.
“What we’re seeing now is borrowers becoming more strategic,” said Jen Poniatowski, SVP of mortgage growth and market development at Key Mortgage Services in Schaumburg, Illinois.
“Instead of waiting for the perfect headline rate, they’re working with trusted advisors to run scenarios and understand the break-even point. In this environment, a refinance doesn’t have to be perfect to be meaningful; it just has to move the needle in the right direction.”
Mortgage delinquencies, foreclosures tick up as some borrowers crack under affordability pressures
The national delinquency rate dipped by 16 basis points (bps) in December to 3.68% following November’s seasonal high, ICE said. This is down 3 basis points from a year ago and 26 basis points below December 2019’s pre-pandemic benchmark.
But late-stage mortgage delinquencies—borrowers who are 90 days or more behind on payments—rose by 30,000 in December to their highest level in three years despite improvements in earlier-stage delinquencies, ICE reported.
Here’s a closer look at the top (and bottom) states where borrowers are falling behind on their mortgage payments. Borrowers in the South account for the largest share of those with non-current home loans while states in the West have the smallest percentage of borrowers who are non-current on payments.
Top 5 States With Non-Current Mortgages*
Louisiana: 8.58%
Mississippi: 8.37%
Alabama: 6.36%
Arkansas: 6.03%
Indiana: 5.96%
Bottom 5 States With Non-Current Mortgages*
California: 2.35%
Colorado: 2.30%
Montana: 2.26%
Washington: 2.16%
Idaho: 2.11%
Perhaps more concerning is the fact that foreclosures are trending up, driven by sharp defaults on government-backed FHA and VA loans. December’s 40,000 foreclosure starts are up nearly 59% over November and jumped 28% from the year prior, ICE found.
At the same time, foreclosure inventory rose 25% year over year, and foreclosure sales rose to 2,100 sales in December—a 41% increase from a year ago.
“These are largely borrowers who have been under strain for an extended period and are now moving deeper into distress,” Poniatowski said. She noted that the stress is “segmented” rather than widespread across the market, particularly for households with less financial cushion.
*Non-current totals include foreclosures and delinquencies as a percent of active home loans
