 |
| © Joe Raedle / Getty Should you refinance? Joe Raedle / Getty |
By Frank Olito, Business Insider
- With mortgage rates hovering around record lows, you might be wondering if now is the time to refinance.
- Jerry Koors, president of Merchants Mortgages, told Business Insider that homeowners should take advantage of the near record low rates.
- Other experts say you shouldn't refinance if you think your employment will be negatively affected by the coronavirus.
- Wealth advisor Stephanie Hammell said lenders have been so busy, they may not even be able to accept new applications.
For many homeowners, refinancing their mortgage can be a difficult and costly decision. It typically costs 2% to 5% of the loan's principal and application fees to refinance, and the process requires an appraisal and a title search.
On top of that, we are in uncertain times. As the coronavirus pandemic has most countries on lockdown and on the edge of an economic recession, many homeowners are wondering how this will affect mortgages and the possibility of refinancing.
Business Insider spoke with four experts to find out the pros and cons of refinancing right now.
On top of that, we are in uncertain times. As the coronavirus pandemic has most countries on lockdown and on the edge of an economic recession, many homeowners are wondering how this will affect mortgages and the possibility of refinancing.
Business Insider spoke with four experts to find out the pros and cons of refinancing right now.
Mortgage rates are at an all-time low, so now might be the perfect time to refinance
Mortgage brokers are seeing a significant increase in refinancing applications. In fact, Dana Gounaris, vice president and general sales manager of Trident Mortgage Company, said there has been a 218% increase over the same period last year.
"Taking advantage of near record-low interest rates is the No. 1 benefit," Gounaris told Business Insider. "How that translates to a borrower depends on their individual financial situation."
For example, Business Insider contributor Eric Rosenberg was able to drop his interest rate by a full 1%, saving more than $50,000 over the life of the loan. His original rate of 4.25% on a $250,000, 30-year loan meant his total payments would be $442,746. Lowering the rate to 3.25% dropped that total amount to $391,686.
Gounaris added that borrowers will want to make sure they're keeping the loan for long enough to break even on closing costs, too.
Jerry Koors, president of Merchants Mortgages, said rates are currently lower than previous lows seen in late 2012 and early 2013, so homeowners should jump at the chance to refinance.
"Depending on when the customer obtained their last mortgage, they may be able to reduce their rate and lower their payment, their total interest paid, or both," Koors said.
"Taking advantage of near record-low interest rates is the No. 1 benefit," Gounaris told Business Insider. "How that translates to a borrower depends on their individual financial situation."
For example, Business Insider contributor Eric Rosenberg was able to drop his interest rate by a full 1%, saving more than $50,000 over the life of the loan. His original rate of 4.25% on a $250,000, 30-year loan meant his total payments would be $442,746. Lowering the rate to 3.25% dropped that total amount to $391,686.
Gounaris added that borrowers will want to make sure they're keeping the loan for long enough to break even on closing costs, too.
Jerry Koors, president of Merchants Mortgages, said rates are currently lower than previous lows seen in late 2012 and early 2013, so homeowners should jump at the chance to refinance.
"Depending on when the customer obtained their last mortgage, they may be able to reduce their rate and lower their payment, their total interest paid, or both," Koors said.
Homeowners also have the chance to release equity
"If the equity available in your home has significantly increased since you purchased it, now might be a good time to refinance if you would benefit from a cash sum," Holly Andrews, managing director of KIS Finance, said. "This is known as releasing equity."
This extra cash can be used as emergency expenses in case you are later negatively affected by the coronavirus pandemic, like being furloughed or laid off, she said.
"This decision shouldn't be made lightly however and should only be done if there are no other options and if you will see the benefits of refinancing in the long run," she said.
This extra cash can be used as emergency expenses in case you are later negatively affected by the coronavirus pandemic, like being furloughed or laid off, she said.
"This decision shouldn't be made lightly however and should only be done if there are no other options and if you will see the benefits of refinancing in the long run," she said.
If you foresee yourself being negatively affected by the coronavirus, now might not be the best time to refinance
If you become unemployed or furloughed because of the coronavirus, it can negatively affect your refinance application.
"Someone who is thinking about moving in the near term or whose job may be negatively affected by COVID-19 should not consider refinancing at this time," Koors said. "[People] who are furloughed, for example, typically have income over a set amount of time but then may be forced to apply for unemployment. You would not be approvable until you return to work, and the application fees — including appraisal — would typically not be refunded."
Andrews said losing your job can directly hurt your credit score and further hinder your ability to refinance.
"The interest rate offered on a mortgage product is largely based off of your credit score, so if this is poor, you won't be given the best rate," Andrews said. "It will be much better to wait for a time when your credit score has improved."
Due to the economic impact of the coronavirus, Business Insider's Eric Rosenberg had to complete extra paperwork when he applied to refinance, including a letter certifying that he didn't know of any new circumstances that would significantly lower his income.
"While I've had to provide additional financial statements in the past, I've never been asked about my current income prospects," he wrote. "With so many people losing their jobs and incomes due to COVID-19, the lender was understandably a little jittery handing anyone a six-figure loan."
"Someone who is thinking about moving in the near term or whose job may be negatively affected by COVID-19 should not consider refinancing at this time," Koors said. "[People] who are furloughed, for example, typically have income over a set amount of time but then may be forced to apply for unemployment. You would not be approvable until you return to work, and the application fees — including appraisal — would typically not be refunded."
Andrews said losing your job can directly hurt your credit score and further hinder your ability to refinance.
"The interest rate offered on a mortgage product is largely based off of your credit score, so if this is poor, you won't be given the best rate," Andrews said. "It will be much better to wait for a time when your credit score has improved."
Due to the economic impact of the coronavirus, Business Insider's Eric Rosenberg had to complete extra paperwork when he applied to refinance, including a letter certifying that he didn't know of any new circumstances that would significantly lower his income.
"While I've had to provide additional financial statements in the past, I've never been asked about my current income prospects," he wrote. "With so many people losing their jobs and incomes due to COVID-19, the lender was understandably a little jittery handing anyone a six-figure loan."
Since there are so many people applying to refinance right now, you may hit several roadblocks in the process
"Because so many people have applied for refinances lately, lenders have been so busy, they were unable to accept new applications," Stephanie Hammell, wealth advisor at Provence Wealth Management Group, told Business Insider.
Hammel said homeowners should talk to their local lenders and see if they can handle another application before applying.
"There are many people who have been able to lock in a lower rate, but also many who have run into these issues," she said. "It's important to go into it knowing what to expect and to possibly wait for a time when things become more secure."
Hammel said homeowners should talk to their local lenders and see if they can handle another application before applying.
"There are many people who have been able to lock in a lower rate, but also many who have run into these issues," she said. "It's important to go into it knowing what to expect and to possibly wait for a time when things become more secure."
See more at: Business Insider
COMMENTS