COVID-19 and Refinancing: Getting Access to Your Home Equity
COVID-19, also known as coronavirus, has changed everything. We're all making the necessary changes and adjusting to the uncertainty and general weirdness that this virus has caused. While even financial experts are unsure about what will happen next, there are a few clues that we can hone in on to prepare mortgage-wise for the upcoming months.
With mortgage rates dropping, is it still a good time to refinance during the pandemic?
Here's what you need to know about refinancing amidst the 2020 pandemic.
What Usually Happens When Mortgage Interest Rates Fall
COVID-19 has disrupted the market in unique ways. We'll discuss those ways in just a moment, but first, let's look at what usually causes mortgage rates to drop and what the typical response is.
What we typically see when people are uncertain about the future of the economy is that they move their higher investments like stocks into lower-risk investments like bonds.
Now, the mortgage-backed securities (MBS) is a major investment that is backed by the monthly mortgage payments and these securities are sold in the bond market.
MBS tends to be in higher demand when people move into the bond market during times of uncertainty. And when the demand for the securities is high, the rate of return doesn't have to be. The result is usually lower mortgage rates.
However, the current situation with COVID-19 is different.
COVID-19 And Mortgage Rates
COVID-19 is causing the market to be more unpredictable than it typically would during a crisis. Here are a few reasons why the market is reacting this way:
- Headlines - News headlines, whether good or bad, has the potential to change the course of the market. With news about COVID-19 changing so rapidly, you can see how making predictions can be difficult.
- No Certain End - While government and medical agencies are working towards bringing this to an end, no one truly has an idea of when it will end. In these types of situations, the result is usually investors moving their money out of financial markets and into things like precious metals. This action can drive mortgage rates up.
- Lender Response - Since rates are changing so much, it's a bit riskier for lenders locking in rates. So it may be possible that you end up paying a bit more to lock in your rate. Also, since the rates are so low, thus driving up the demand to refinance, lenders may inch their interest rates a little higher. This is not always the case but something to be aware of.
Here is another important fact to note: The mortgage process is considered an ESSENTIAL financial transaction.
Housing Plays A Significant Role In The Economy
Since housing is so significant to the economy, the Federal Reserve sometimes intervenes to stabilize it by buying up lots of MBS. This action helps to keep mortgage interest rates low and encourage people to buy homes.
Although we don't know all of the details of the recently passed a $2.2 trillion aid, the Feds have several courses of action to keep mortgage rates at a favorable level for homebuyers and homeowners. They stated that in addition to an emergency rate cut, they would do as much purchasing in the financial markets as is necessary to help ward off any economic downturn caused by the virus.
Should You Refinance During The COVID-19 Pandemic?
Here's what it boils down to: Rates are still low, your home is your most significant financial investment, and your home equity can provide financial stability you need in times of trouble.
There are still many things to consider before deciding definitely if this is the right more for you. So we encourage you to contact us today to set up a consultation. The sooner we get started, the sooner you have access to your home equity.
How Can We Help You Gain Financial Stability?
The mortgage process is considered an ESSENTIAL financial transaction and critical to the economy. Rest assured that our office is equipped and connected with everything you need to expedite your loan and answer your questions.