Should I Refinance My Home When Interest Rates Are Low?
In response to the COVID-19 pandemic, the Fed lowered the historically low prime interest rate to 0%. Interest rates for 30-year mortgages are currently at historic lows, around 3% for the past few months since the virus outbreak.
This is a tempting time for homebuyers, as it seems an ideal time to snag a low interest rate. However, lockdowns and job insecurity concerns have prevented many potential buyers from capitalizing on the situation, deterring them from purchasing a property until after the pandemic is over. However, when interest rates dip, it is natural for current homeowners to consider refinancing as well, leading to a significant increase in the number of people trying to take advantage of the COVID-19 interest-rate climate.
Not only are interest rates so low that it seems silly not to refinance, but massive unemployment rates and concerns about future job security are leading people to consider refinancing to decrease their monthly mortgage payments and reduce the pressures of financial hardship. But while jumping on the bandwagon and locking in a low interest rate may seem like a good idea, is a pandemic actually a good time to refinance your home? It may seem at first glance that there is no good reason not to refinance with rates as low as they currently are. But if you already have a smaller loan, the benefits of refinancing to knock off a tiny amount of interest may not be worth it. Consider that closing costs could be between 2% and 5%, so reducing your interest rate by only a small amount may not be worth the money you will have to pay upfront to get the process underway. This also applies to those who do not intend to stay in their home for longer than the next few years. If you plan on selling sometime soon, refinancing now will not be worth the costs of closing.
On the other hand, if you have a jumbo mortgage or one close to or over a 4% interest rate, it is definitely worth a shot. Knocking a percentage point off your current rate will lead to significantly lower monthly payments and could benefit you now and in the long run. In these cases, it is worth asking your lender how much it would cost to refinance and whether or not you are eligible. Because of precautions and social distancing, refinance may be technically more challenging during a pandemic. Mortgage companies have received a massive influx in the number of people applying for new loans and refinancing. So, while it may be tempting, bear in mind that there is an odd chance you will not be able to lock in a significantly lower rate than you already have.
Low rates are drawing in huge numbers of people, bottle-necking the loan process, and causing significant delays. Not to mention closures, increased safety precautions, and reduced staffing have affected municipal and country officers and borrowers, who may also need to be more staffed and able to process applications promptly. But even considering all the above, the biggest argument against refinancing your home right now is the hit your credit will take. For many people, the biggest temptation is to refinance to reduce monthly payments, specifically during a time where when we could be experiencing loss of income or financial trouble.
However, while paying less for your mortgage every month may seem like a great way to reduce money-related stressors, if you don’t already have exemplary credit or your credit has taken a hit since COVID-19, you might want to reconsider. It is important to understand that you may not qualify for a refinance if your financial situation has changed considerably or if you have taken a pay cut, lost income, or increased debt due to Coronavirus. If you are unsure whether or not refinancing your home in the current climate is a good idea, the best place to start is by contacting your lender to figure out how much it would cost you to go through the process. If you have a higher interest rate, you have a good credit score, and you plan on staying put in your current home for a while, it may be a perfect time to take advantage of historically low rates. For
If you would like more information on the real estate industry, please get in touch with one of the title and escrow specialists at Plymouth Title Guaranty Corporation.
Just to let you know, the safety of our staff and clients is our highest priority. Effective immediately, Plymouth Title Guaranty Corp. will take the following precautions to limit the spread of the COVID-19 virus: All purchase transactions must occur at a Plymouth Title Guaranty Corp. closing office.
If a party to the closing is not feeling well, please get in touch with your closer prior to the closing so appropriate precautions can be taken;
We ask visitors to utilize the restroom in our building upon arrival to thoroughly wash their hands before entering our office;
Only individuals required to sign and deliver documents at closings will be allowed in our office. Specifically, closings will be limited to borrower(s), seller(s), agents, and lenders;
All pens used in the closing will be given to the client after use;
All closing rooms will be cleaned and disinfected in between each closing;
Those picking up checks at our office will be instructed to call our main line and request to speak to a staff member who will make arrangements for delivery to the lobby or parking lot of our office; and
All staff will refrain from shaking hands before or after closings and ask clients to do the same
Just to let you know, our staffing may be impacted during this unprecedented event. While we are committed to continuing to provide outstanding service, we ask for your patience in the face of this pandemic. This is a fluid situation, and we will continue to adjust our protocols as necessary while following the CDC guidelines.
