Refinancing a mortgage has traditionally been a time-consuming process, requiring homeowners to research lenders, compare rates, gather documentation and complete lengthy applications.
Artificial intelligence could dramatically simplify that experience—making refinancing faster, easier and more accessible for millions of borrowers. In addition to that, AI could help households find lower rates for their loans, which could lead to significant savings.
Morgan Stanley Research estimates that even a modest level of AI adoption by borrowers could generate an additional $2.1 trillion in refinancing activity within the $14 trillion U.S. residential mortgage market if the mortgage rate rallied to 5.5%.
"Greater volume in refinancing activities doesn’t just offer benefits to the companies enabling and supporting housing activity," says Jay Bacow, Co-Head of Securitized Products Research at Morgan Stanley., “We also expect increased efficiency in borrowing to have implications across fixed income and broader macroeconomic sectors in a multi-year, cross-asset theme.”
Making Refinancing Easier for Homeowners
Over the past 25 years, only about 29% of U.S. homeowners have taken advantage of opportunities to prepay or refinance their mortgages, despite potential financial benefits. Many borrowers are unaware of refinancing opportunities, lack the time to evaluate their options or are discouraged by the complexity and paperwork involved.
Morgan Stanley Research estimates that AI could increase prepayment adoption from 29% annually to 60% in its base-case scenario by improving the borrower experience in several ways, including:
- Continuously monitoring mortgage rates and borrower eligibility
- Automatically preparing required documentation
- Personalizing and simplifying the application process
- Accelerating approvals and shortening closing timelines
- Identifying refinancing opportunities as soon as they become economically beneficial
"We are imagining a world where homeowners who use AI agents to manage personal finances can automatically shop lenders for the best rate and refinance when it makes economic sense," Bacow says. "We expect to see more AI disruption in the mortgage market from consumers adopting AI to manage their finances and refinance than from originators reducing closing costs and increasing efficiencies."
AI Could Also Reshape Mortgage Lending
However, lenders are certainly positioned to benefit from greater AI usage as well. Today, the mortgage origination process—from receiving a loan application to the final disbursement of funds—remains highly manual and labor-intensive, with several tasks well suited to AI and automation.
Increased use of AI could reduce costs, increase operational capacity and improve efficiency across the lending process. At the same time, it may lower barriers to entry for smaller lenders and increase pricing transparency for consumers, potentially putting pressure on industry margins.
