June 5th, 2020 10:05 AM by Jackie A. Graves
The coronavirus pandemic has had a devastating
impact on the U.S. economy, and
4.75 million homeowners have sought mortgage relief through
forbearance programs, according to housing data provider Black Knight.
At the same time, the current economic
environment has also caused mortgage interest rates to plunge to record lows.
This trend may cause some homeowners to consider refinancing their mortgage,
possibly with new loan terms.
are the current mortgage rates?
Mortgage rates can vary based on daily
fluctuations and your creditworthiness. However, according to Freddie
Mac, the weekly average rate as of May 28 for fixed-rate loans was
3.15 percent for a 30-year mortgage and 2.62 percent for a 15-year mortgage.
If the interest rate on your current mortgage
loan is higher than these averages, it may make sense to consider a mortgage
refinance loan. You can visit
Credible to compare rates and
lenders in your area.
That said, it’s important to consider both the benefits and
drawbacks of mortgage refinancing, especially during a pandemic and economic
pros and cons of a mortgage refinance
While we’re seeing record interest rates on
the low end of the spectrum, refinancing may not be right for everyone.
Here are some advantages to consider:
Potentially lower monthly payment: If you complete a mortgage
refinance into a 30-year mortgage, it
could help you reduce your monthly payment, even if you don’t get a lower
interest rate. That’s because if you’ve been making payments on your loan for a
few years, extending that term to 30 years again can result in lower payments.
Take advantage of a shorter term: 15-year mortgages come with lower interest
rates because they present less of a risk to lenders than a
30-year mortgage. If you can afford a potentially higher monthly payment with a
shorter term, it could help you eliminate your debt faster and save money
on interest charges.
You may be able to access equity: If your emergency fund balance
is low, a cash-out refinance could allow you to tap some of your equity to
bolster your savings, which can come in handy during an unpredictable economic
situation. This can especially be a good option if your home’s equity has
increased dramatically since you first purchased the home.
Despite these benefits, there are also some pitfalls to keep in
mind, whether you’re considering a mortgage refinance for 30 years or 15 years:
It may be tough to qualify: If your financial situation has
changed because of the pandemic, it may be challenging to qualify for a home
refinance. Even if your situation hasn’t changed yet, consider the odds of it
happening in the near term. Getting laid off or furloughed in the next month or
two could negatively impact your mortgage refi application.
Closing costs may neutralize your
savings: Scoring a lower interest rate or longer repayment term can help
you save on mortgage payments. But the loan’s closing costs, which can range from 2 to 5 percent of your loan amount, can wipe out those
savings. To determine if refinancing is the right move, divide your total
closing costs by your monthly savings. This will tell you how many months it’ll
take to break even, and if you plan to stay in the home longer than that, a
mortgage refinance may be the right choice for you.
You may see some delays: Low rates mean that many
homeowners are seeking to refinance their home loans, and there have been reports that some lenders are overwhelmed, causing delays
in the approval and closing process. If you’re hoping to complete the process
quickly, it may be better to wait until lenders have a chance to get through
you refinance your mortgage loan?
Mortgage refinancing can be a lengthy and expensive process, but
if you’re in a solid financial position and can expect long-term savings from a
new loan, it may be the right decision, even in the midst of a pandemic.
However, if the health of your finances in the
short term is in question, you may find it difficult to get approved for a loan.
Take time to understand the state of your financial well-being and how a
mortgage refinance can help you.
If you’ve decided that refinancing your home
loan is right for you, visit
Credible to find personalized
rates and lenders all in one place.
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