Refinancing your mortgage in the time of COVID-19
One of the economic side effects of the COVID-19 pandemic has been a fluctuation in mortgage interest rates. After deep cuts in March and April, rates have begun to stabilize but remain very desirable for both home buyers and homeowners considering refinance.
Should you consider refinancing your mortgage in this time of COVID-19? Here is a closer look at factors that could impact your decision.
Who is the best candidate for refinance right now?
Interest rates are currently in the low 3 percent range for a 30-year fixed loan and in the high 2 percent range for a 15-year fixed loan.
“Borrowers with a current interest rate of 4 percent or higher, who have been in their home at least two years, with no immediate plans to move, are the ideal candidate for a mortgage refinance in the current lending environment,” said Chris Cope, president, Allen Tate Mortgage.
That said, lowering your interest rate is just one reason to consider refinance. If you are looking to lower your monthly payment, a higher interest rate might result in a lower payment because it could remove the private mortgage insurance requirement. Some borrowers may wish to refinance to shorten the term of their mortgage from 30 to 15 years, resulting in a slightly larger monthly payment.
A cash-out refinance is a good option for some borrowers, as it leverages equity in your home to help finance home repairs or pay off credit card debt or other short-term loans. However, in the current lending environment, many lenders have removed the cash-out mortgage refinance options and will likely restrict them until the economy begins to recover.
Are there lending restrictions for mortgage refinancing?
Like home purchase loans, lenders have placed some restrictions on lending during COVID-19. Government loans (FHA, VA, and USDA) have minimum credit score requirement of 660 and Conventional loans have a minimum credit score requirement of 620. Jumbo loans currently have limited availability, and self-employed borrowers will be asked to provide more documentation, the same as home purchase loans.
Can you refinance a mortgage if you are currently on furlough?
Proof of employment and income are required for a home purchase loan or refinance. If you have been laid off or are currently on a furlough from your job, you will need to wait to refinance. If you expect to return to work, you can begin the refinance loan application process now and your income can be recalculated once you are back at work, allowing you to move forward with refinancing your mortgage. You will need to provide a paystub to confirm you are back at work with the same hours, etc.
What costs are involved with refinancing?
As with a home purchase loan, refinancing a mortgage requires an appraisal, which is generally paid for once it has been ordered. If you have enough equity in your home, closing costs for a refinance can be rolled into the loan. The only inspection that is required for a refinance is a termite inspection for a VA loan. Your Allen Tate Mortgage Consultant will provide you with a Loan Estimate, which is a document that details closing costs, fees, and the refinance terms, including interest rate and length of the loan.
What is the process to refinance a mortgage?
If you believe a refinance might be a good step toward your financial goals, contact an Allen Tate Mortgage Consultant for a mortgage review. You will then be asked to provide financial information and documentation virtually via the MortgagEase app. Your Mortgage Consultant will then provide you with the best possible options to refinance your home.