As winter gives way to a spring thaw that will soon turn to summer, the housing market typically (during an average year) sees an uptick in activity from home buyers and sellers.
But 2020 is unlike any year we have seen — and it’s shaping up to be anything but average.
Most businesses have closed for the time being, curbside pickup or delivery is a must, unemployment rates have skyrocketed, and people around the globe have been told to stay home.
So, since the recent coronavirus pandemic has impacted every aspect of life, it’s no surprise that the housing market has been impacted too.
If you were planning to buy a home this year and feel uncertain, you’re not alone.
As federal and local governments continue to implement and change policies that fit with our new reality, it’s hard to know what to expect for the future.
Whether you were in the middle of the homebuying process or just gathering preliminary information before the pandemic began, it’s important to understand how the coronavirus has influenced mortgage rates.
Steps Taken by the Federal Reserve to Protect Mortgage Rates
In March, the Federal Reserve responded to the COVID-19 crisis by taking steps to keep money moving through the mortgage finance system.
These steps, which included two rate cuts, were part of a broader effort to help protect the economy from permanent damage caused by COVID-19.
Mortgage rates on fixed-rate mortgages and home equity lines of credit began to fall after the Federal Reserve pledged billions of dollars’ worth of mortgage-backed securities and cut short-term rates.
Despite the efforts to keep the housing market circulating, fewer homes have been on the market and mortgage applications are down.
In the world of interest rates, fluctuations are inevitable. Percentages can change in a short amount of time.
Case in point, the estimated interest rates predictions from six month ago aren’t the rates we’re seeing today.
Source Credit: TheMortgageReports.com
Projections anticipated rates to average from 3.5% to almost 4%. In reality, rates are averaging from 2.5% to 3.125%.
Here’s what it means for home buyers who want to know how to lock in a rate or homeowners interested in refinancing their mortgage rate.
Securing a Mortgage Rate in the Age of Coronavirus
Homebuyers will see a decline in available homes this year.
As the pandemic begins to slow and businesses reopen, the housing market is expected to be influenced by COVID-19 interest rates.
Depending on your budget, mortgage rates and affordability might not be the challenge you’re faced with while looking for a home. Having a smaller selection of affordable homes to choose from in your desired area could be the bigger issue.
To keep the homebuying process moving, apply for a mortgage early. Once approved, the mortgage pre-approval letter is typically valid for 60 to 90 days.
The pre-approval letter helps sellers feel confident in your commitment to buying a home — specifically, their home.
Mortgage pre-approval will also lock in the interest rate. So, if the coronavirus negatively impacts interest rates and causes an increase, your rate is protected for the allotted time indicated in the pre-approval letter.
And, since times are uncertain, some sellers might request flexibility or contingencies in the closing date. Keep in mind, the seller might be relocating for a new job or because of stresses caused by the pandemic. Being flexible with their needs could mean getting the home of your dreams.
Should You Refinance Your Mortgage Rate Because of the COVID-19 Pandemic?
As mortgage rates have dropped, it may be tempting to refinance.
But, before completing the paperwork, take a step back and evaluate if it’s the right option for your mortgage.
Refinancing a mortgage is a big step, almost as big as applying for a mortgage the first time. The process takes just as much time and effort.
If you decide to take the steps to refinance your mortgage, it’s important to have a goal in mind. What do you want to happen after refinancing? Are you searching for a lower monthly payment, shorter loan term, or are you taking equity out of your home?
Reducing monthly payments is the primary reason why homeowners refinance their mortgage.
Even a difference of 0.5% can offer significant savings over the course of the life of the loan.
The thought of saving money in the long run is certainly enticing, but make sure you run all of the numbers involved with refinancing.
Add up the closing costs, appraisal fees, and title fees then calculate your break-even point. This is the amount of time it will take to recover the money spent on refinancing. Ideally, it will happen within two years of refinancing.
If you plan to stay in your home for a long period of time, it could be worth the cost. But, selling your home before the break-even point could actually mean you’ve spent more money than you would have previously.
Find the Right Mortgage Option for You
If the coronavirus-influenced mortgage rates seem to favor your financial and housing needs, we recommend working with the mortgage specialists that have your best interest in mind.
Hudson River Community Credit Union mortgage specialists will work with you to find the option that fits your individual needs. We offer options such as 10/1 ARM, 15-year fixed interest, 20-year fixed interest, and 30-year fixed interest rates.