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How the coronavirus may affect your mortgage
Dropping interest rates have left lenders overwhelmed with applications.
Multiple industries have been affected by the spread of the coronavirus, social distancing and city lockdowns. But the borrowing and lending industries have seen a recent boost in activity. Homeowners are examining their mortgage options as interest rates drop in hopes of long-term benefits.
The effect of COVID-19 on mortgage rates
In the midst of the coronavirus and economic uncertainty, mortgage rates have dropped. According to Freddie Mac, the average fixed-rate interest on 30-year mortgages at the beginning of March was 3.29%. While rates are expected to increase slightly, mortgage rates are at 50-year record lows.
What low rates mean for homeowners
Many homeowners are weighing options to potentially capitalize on dropping rates by refinancing their mortgages. Even a quarter of a percentage difference in your interest rate could spell thousands in interest savings over the life of your loan.
According to the Mortgage Bankers Association, the week ending March 6, 2020, saw the highest number of homeowners applying for refinancing since April 2009, with application rates 479% higher than the same week in 2019. If you still owe money on your mortgage, it might be a good idea to lock in lower interest while rates are in your favor.
What low rates mean for homebuyers
It’s a good time to buy on paper, but the economic climate as COVID-19 spreads nationwide has left some potential homebuyers uneasy. For one, many people are nervous about steady employment. And both buyers and sellers are cautious about attending open houses in fear of spreading germs.
Despite that, the Mortgage Bankers Association also reports an increase in mortgage applications — the highest numbers since April 2009. Compare current mortgage rates.
The effect of COVID-19 on lenders
Lenders report difficulty in keeping up with the influx of applications from borrowers looking to refinance their mortgages. Despite government mandates that require lenders to close branches and employee transitions to work from home, lenders like Quicken Loans are going on hiring sprees to accommodate the demand.
What demand means for homeowners and buyers
With lenders operating at capacity, some are refusing applications altogether. For lenders that are accepting applications, reps report delays of up to two hours by phone just to talk to a loan officer.
If you’re planning to buy or refinance, build in more time than usual for application approvals, returned calls and other business transactions. And with many government tax and other offices shuttered for the foreseeable future, expect closing to come more slowly as well.
What if a lender turns me away?
If a lender doesn’t accept your application, shop around for another bank, credit union or mortgage servicer. Especially as lenders struggle to return phone calls.
Take care with applying with too many lenders at once, however. Each application requires a hard pull on your credit, which can temporarily chip away at your credit score. Instead, keep your applications within a 45-day window so that all credit checks can count as one inquiry on your report.
Should I sell my house?
Maybe not. During the economic fallout of the coronavirus, fewer people are expected to hunt for houses, and borrowers are waiting in long lines to get a mortgage. A March 16 flash survey from the National Association of Realtors found that 48% of members saw a drop in buyer interest due to the coronavirus. Many sellers — as well as real estate firms like Redfin — are canceling open houses.
Still, many sellers are opting for virtual tours to keep business going. And with signs pointing to a buyer’s market, if you’re set on selling your house, a lower asking price may keep your home competitive.
As interest rates drop in the wake of COVID-19, it may be a good time to consider refinancing your mortgage. But with so many people looking to save where they can, expect long wait times for approval, calls and closing.
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