Ever since the Federal Reserve slashed rates in late February as the coronavirus began rippling throughout the United States, it has been a great time to buy an existing home or refinance a current home. In fact, mortgage rates are currently the lowest they’ve been since the 1970s thanks to a double dose of Fed cuts in 2020 as a means of keeping the economy on track. Per Freddie Mac, average current rates for a 30-year fixed-rate mortgage come in at 3.07 percent, while you can get a 15-year fixed rate mortgage for a rate as low as 2.56 percent.
Noting this, now is still a great time to refinance – and it could make even more sense now than it did in February or March if you or your spouse is out of work and you want to refinance and take cash out. But we’d strongly advise you to act now, because these rates aren’t likely to last through the end of 2020.
So just why is it important to refinance now? Especially since we’re in an economic recession and rates tend to stay low to entice buyers in more trying times?
The answer is simple: Because home values could plateau this fall. While it’s true that the housing market tends to move somewhat slowly, a spike in COVID-19 cases in the latter part of the summer and the prediction of a second wave of the virus in the late fall could wreak havoc on home values. And if housing values fall, lenders are likely to want to use the property’s present market value to help them steer refinance loans. This could mean a much less attractive loan-to-home value ratio.
It’s all part of the reason why it makes sense to refinance now – and to refinance to a lower-term mortgage for the best opportunity for long-term savings. Think of it this way: If you’re able to shave years off your mortgage when refinancing, you’ll be paying a lot less in interest, not to mention skipping out on years of principal as well. And if you’re in a hard place and can’t shave term, it’s highly likely that you’ll be able to decrease your monthly payment, a savings that can go a long way in more trying times.
It does cost some money upfront to refinance a home, however often times closing costs can be rolled into the new mortgage. Even if you have the means of paying the closing costs up front, it’s common for homeowners to break even on this expense over just a few months of realizing the savings. We just caution you to act now before it’s too late.
If the COVID-19 situation worsens, it’s going to take home values with it. And if it improves and economic recovery begins to happen, rates will also likely tick up. Now is the right time to act. Does it make sense for you?
