When the World Health Organization declared the coronavirus an international public health emergency in late February, financial experts wondered how severe the economic consequences would be. They didn’t need to wonder for long, as the stock markets went into a tailspin just as the first cases of coronavirus started to make headway in the States.
Media reporting went into overdrive, and the public’s fears of this unknown virus worsened. If it continues, consumer confidence may decline, trade may slow, and gains in economic growth may evaporate. Such trends, in addition to job growth, business investment inclinations, and other market conditions, are all considered when Movement Mortgage sets rates.
Will coronavirus affect mortgage interest rates?
While unexpected, the global spread of the Coronavirus has indeed increased the likelihood of a mortgage interest rate cut sooner than expected. How severe the health crisis is, and how long it lasts, will be determining factors for how mortgage rates will be affected. During the SARS health scare of 2003, global economic growth slowed while mortgage rates dropped. This could be indicative of how the market will react to coronavirus as well.
When SARS was a concern, China accounted for less than 5% of global GDP. Today it accounts for 19.75%, according to Statista.com. The fear that coronavirus will impact the economies of more than just China has been driving global investors to move from stocks to bonds, which are considered safer. The bad news is that investing in the bond market, including mortgage-backed bonds, results in lower yields. The good news is that it also results in lower mortgage refinancing rates.
Current rates are already low and could drop further in the near future, which could financially be beneficial to those who are considering a variable rate mortgage or are looking to refinance a fixed-rate loan. In fact, at the time of this writing, the Federal Reserve cut rates in response to the coronavirus outbreak.
Benefits of refinancing
With rates so low, there’s plenty of reason to look into refinancing, whether to lower your monthly payment, pay off the loan sooner, or to cash out some of the equity in your home to pay for improvements or some other financial need.
Of course, you’ll need to qualify for refinancing, which means gainful employment and good credit — just like when you applied for your first mortgage. Additionally, there is a cost: a refinancing loan requires payment of approximately 1%-2% of your home’s value in closing costs. And then there’s the time factor, by refinancing, you’re essentially hitting the reset button on your mortgage. Depending on the terms of the loan, it may take you longer to own your home outright.
Still, the benefits of refinancing are vast. Here are our top 6 benefits of refinancing your home loan.
1. Save money by reducing payments: Lowering monthly mortgage payments is the number one reason homeowners look into refinancing their homes. Rates don’t have to be drastically lower either: a single percentage point difference can reduce monthly mortgage payments pretty significantly. Remember, though, carefully consider how long you may be in your home, and then do the math to be sure the monthly savings adds up to be more than your refinancing closing costs.
2. Save money by paying off your mortgage faster: Like most people, your mortgage isn’t the only expense you have to deal with every month: there’s student loans, car payments, grocery bills, maybe even savings for a child’s education. Whatever your situation, refinancing to a mortgage with shorter terms calls for fewer monthly payments overall, so you end up paying off your mortgage faster.
3. Build equity faster: Going from a 30-year mortgage to a 15-year mortgage may result in higher monthly payments. If that sounds unappealing, consider this: realigning a mortgage from thirty to fifteen years can also help you to build equity in your property faster, and the shorter term will save you money in interest payments over time.
4. Get cash out of your home: The first few years of mortgage payments divert more money to pay off the interest rather than reducing the principal amount borrowed. Over time your payments will cover more and more of the principal. If you’ve been making mortgage payments for a few years, you may have already built up some equity in your home. That’s money that could be put towards a bathroom renovation, a kitchen remodel, or a landscaping project. Or maybe a little extra cash would help consolidate bills or pay down high-interest credit cards. So, if you have good credit, a low interest rate will allow you to borrow against your home’s value at a low cost.
5. Make mortgage payments more predictable: Some homeowners initially opt for a shorter-term adjustable-rate mortgage, especially if they don’t think they’ll stay in their home for 30 years. Those loans are optimal for lower initial payments, but they are unpredictable, especially when you get to the point in the loan where the rate could change…sometimes by a lot. If you’re looking to stabilize your loan payments each month, consider a refinance to switch from an adjustable-rate mortgage to a fixed-rate mortgage.
6. Say goodbye to mortgage insurance: On the rare chance that a buyer might miss a payment, mortgage insurance secures the loan from default. Unless you put down a large down payment when you bought your home, you’re probably making a monthly mortgage insurance payment of a few hundred dollars on top of principal and interest. But if your home value has increased, and the balance you owe has decreased, refinancing may help you lower your mortgage insurance payments or eliminate them altogether. It’s not for everyone, though: homeowners who qualify for this benefit usually have already paid off about 80% of their home’s value.
The time is right to refinance
With the threat of coronavirus and the jittery stock market looming large, choosing to refinance your home might not be top of mind right now. But the time is right!
Here are just some of our refinancing products to get you started:
- Refinancing a VA loan
- Refinancing to reduce homeownership costs
- Refinancing to get cash out of your property
Think it through and weigh the short and long term benefits. You’ll be surprised at how simple and easy refinancing can be when you work with an experienced mortgage professional. Find a local Movement Mortgage loan officer and get started!