(During COVID-19): 3 Things To Consider
As interest rates go even lower, refinancing MAY be a great option. As we all settle into the new norm of Covid-19 many of us are not able to help out too much or make a meaningful difference being at home. Yes! being at home is all part of helping but we are looking for ways to take action. So with headlines across the board talking about mortgage rates dropping, I've had many people reach out and ask if it's a good time to refinance their mortgages. In short, I would say yes, but here are 3 things you should consider first!
1- How long are you going Live in the home?
Knowing this pretty clearly will help you do a quick, back of the napkin calculation. with some certainty is important because we can do a quick calculation and find your break-even point. Ask the lender what your total costs will be and if they say it's a "no-cost" loan, ask them what your total fees for the whole loan process will be. This includes any points that they may charge you, any application fee, appraisal fee, and closing costs. For example, let's say your total closing costs or $3000 and by refinancing now you will save $300 a month. You simply divide 3000 by 300 and that's how many months it will take you to break even so in this example it'll take you 10 months to break even. Once you've hit the 11th month the refinance made sense!
2- How far into your current mortgage are you?
If you've been in the home for 10 years then of course refinancing into another 30-year loan will save you money but over the long run, you'll be paying way more interest. This is simply because you just tacked on another 10 years of payments to the bank. Another scenario is if you bought your home 10 years ago (juts an example) and since then the housing prices have gone up in your area and you've made significant improvements to your home like an upgraded kitchen and bathroom. Well the market value of your home that the bank is using on your application will get recorded by your town. This could ultimately increase your property taxes and depending on where you live this could seriously affect your monthly mortgage payment, your piti (principal, interest, taxes and insurance).
3- Loan Processing is slower!
Refinance applications have skyrocketed so processing times are slower than normal. And of course, fewer people are actually at work because of the shelter-in-place restrictions. So needless to say processing times from start to finish have slowed dramatically. Talk this out with your lender. Get a very clear understanding from A to Z about what goes into the refinancing process so you can continue to follow up with them and hold them accountable. Make a step by step list so you can stay up to date, for example, Step 1: Complete Loan Application, Step 2: Have the home appraised, etc... They may have a stack of files they're working through and you don't want to slip through any cracks.
You also want to know how long they will lock in the interest rate they quoted you. If they say your rate is locked for 30 days and on average it’s taking them 45 days to close a refinancing loan you need to be aware of that. Don't expect that there are working on this behind the scenes for you all the time. You need to take ownership because they're also inundated and things have changed for everybody during this pandemic.
Lastly, if you're having trouble paying your current mortgage there is an opportunity for you to receive forbearance which is essentially a temporary hold on your mortgage payments. You still have to pay them but it's a temporary hold and it could last anywhere from 3 to 12 months under the recently enacted CARES Act. This is official for federally backed mortgages an example would be an FHA loan a VA loan a Fannie Mae loan. If you're not sure just pick up the phone and call your lender or loan servicer. Ask them how to proceed with receiving forbearance. You can't simply stop paying your mortgage you have to make sure that they're on board and they are aware that you're facing financial hardship because of COVID-19.
If your mortgage is not federally backed many companies are still working with homeowners and have adopted the CARES Act practices. It's up to you to call and clarify your options. Don't assume they understand what you're going through. I hope you found this helpful share the info with other homeowners if you think they would find this useful!