29 May Refinancing your mortgage during Covid-19
Ever since the economic halt took place due to Covid-19, many people have been considering refinancing their mortgage. Before you rush into any decision, there a few things you should consider.
First and foremost, people normally refinance their mortgages because they want to switch to a lower rate, they are moving to a new home, or they need to take out equity. However, Covid-19 is adding a few new reasons to this list, the main one being a will to have a safety net. Many are hoping to reset their current rate to a lower one, thus lowering their payments, they are hoping to get a HELOC (see post on this), or to pull out equity ahead of potential job loss of property value reductions.
All of this is very valid, but here’s what you should consider if you are in this situation.
– If your job is not deemed “essential” by the government, the lender may want to see some proof you will not be laid off during this time period.
– The refinance process is not a top priority for lenders. In other words, purchases and lender switches have moved ahead of refinancing due to high demand and lending, appraisal and signing. Depending on the lender, you could be looking at over 40 days to close the refinance.
– Have you thought about penalties? You should. If you are getting out of a closed mortgage to seek a refinance, you know you have penalties to pay. You may have to pay thousands of dollars depending on how much you owe, and so forth. So, make sure you know your lender is going to calculate your prepayment penalty. Don’t forget that penalties are generally 3-months’ interest on variable-rate mortgages and the greater of 3-months’ interest or the interest rate differential on fixed-rate mortgages. To know more about this, check Carmen Costa’s book “The reality of mortgages”.
– Talk to us to find out what the current situation is with rates.
– If you lose income, you may want to consider a HELOC (Home Equity Line of Credit). Payments are interest-only, but they must be put in place ahead of time. To get a HELOC, you must have excellent credit, a stable employment and a reasonable debt-to-income ratio.
As you can see, there’s more to this than just getting your mortgage refinanced. We are here to advise you and to help you find the best solution possible for your situation.