HISTORICALLY-LOW RATES MAY PROVIDE OPPORTUNITY
by Contributor
(May 10, 2020) — COVID-19 shook the world to its core, and with it, financial stability and home ownership. The crisis has many scrambling for ways to pay their bills amid rampant layoffs and business closures, and mortgages are high on the priority list. One solution that comes to mind is refinancing, so you might ask yourself, “Does refinancing my mortgage make sense during COVID-19?”
What is Mortgage Refinancing?
When you buy your home, you’re responsible for paying a mortgage loan. Over time, it could make sense to renegotiate that mortgage to fit your financial situation. Mortgage refinancing involves replacing your home loan with a new one worth the same amount, but with a few changes. For instance, maybe you want to switch from a 30-year to a 15-year mortgage. Or, you simply want to reduce your monthly payments. Whatever the reason, it’s worth researching current interest rates and discussing available options with your lender.
What Factors Influence Refinancing?
Refinancing your mortgage is a big move, and one that involves several moving parts. While there are plenty of benefits to refinancing your mortgage, you’ll want to think about a few key points before taking the plunge.
How Long You’ll Own Your Home
How long do you really see yourself living in your current home? Realistically, if you’ll move within a few years, refinancing isn’t worth it. The longer you live in your home, the more you’ll save over the lifetime of the loan. Do you plan on staying in your home 10+ years? Discuss how your payments might decrease with your loan officer, as well as new closing costs.
How Old Your Current Loan Is
If your loan is still relatively new (i.e. you bought your home within the past few years), the savings potential for refinancing can be tempting but also might leave you wondering if you’re eligible or if it really makes sense. The answer? It depends.
Remember, refinancing requires closing costs, and some lenders might even impose refinance waiting periods. As a general rule, if you’re only looking to refinance the existing mortgage balance, your lender won’t make you wait. But will the savings justify the closing costs all over again?
How the Savings Might Help Right Now
Every little bit of savings helps. A few hundred dollars per month from mortgage savings isn’t significant for the short term, but it’s a start. Things like repairs, medical emergencies and retirement savings all have one thing in common: money. Your mortgage refinance savings can start to build (or rebuild) your various rainy day funds.
Will Refinancing My Mortgage Make Sense Now?
Thirty-year mortgage rates are at an all-time low (3.23%), and you shook your head “Yes” to the points we’ve already discussed. Those might be big enough reasons to pursue refinancing. But mitigating factors could influence your decision.
Employment Impacts on Refinancing
Unemployment is sky high across the nation. In discussing mortgage savings with your lender, they will verify your current employment status with you as a condition of eligibility. After all, employment income will help you honor closing costs. If you’ve been laid off due to COVID-19, it’s probably best to wait or explore other options.
Alternatives to Refinancing
Refinancing isn’t the only option to save on your mortgage during times of financial strain. That’s why it’s important to look at the solution that will best fit your circumstances.
One alternative to mortgage refinancing during COVID-19 is deferring your mortgage. Forbearance allows homeowners who are experiencing extreme personal hardship to delay mortgage payments. If you’ve been laid off or sick because of COVID-19, forbearance can reduce or suspend your mortgage for a brief period. Once you’re back on your feet, your lender will work with you to fulfill the deferred debt.
Explore Refinancing and Emergency Mortgage Solutions During COVID-19
Today’s financial market is classified as “volatile” at best. The fact is, mortgage rates are changing daily, providing potential benefits to so many people. So does it make sense to refinance your mortgage during COVID-19? Ultimately, that’s your call. Keep your eyes on the market for mortgage rates you’re comfortable with, and if you think you might want to make a change soon, get in touch with your lender.