Statistics show that these homeowners are flocking in droves to refinance their mortgages. Refinancing applications are up 225% from the same week a year ago according to the Mortgage Bankers Association.
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The Benefits of Refinancing Your Mortgage During the Pandemic
There are two main reasons why refinancing during the COVID-19 pandemic could be a really smart move–low interest rates and more time to navigate the process. Here’s what you need to know.
Interest rates are at all-time lows
Due, in large part, to the unprecedented drop in the treasury yield, mortgage rates have fallen to never-before-seen lows. And that’s not an overstatement. On March 5th, the average 30-year mortgage rate hit an all-time record low of 3.29%.
As of the writing of this article, the average rate is only 2 basis points higher at 3.33%. Just a year ago, the average 30-year mortgage rate was nearly a full percentage point higher at 4.20%.
In light of these numbers, it’s not an exaggeration to say that there’s never been a better time to refinance your mortgage. Many homeowners could drop their interest rate by an entire percentage point or more, potentially saving them thousands of dollars in interest over the life of the loan.
With these rock-bottom rates, you may even be able to shorten your repayment terms (helping you pay off your mortgage faster) without a dramatic increase in your monthly payments. Plus, refinancing can offer other benefits like the ability to cancel PMI or tap some of your home’s equity via cash-out refinancing.
You may have more time to navigate the application process
Taking out a home loan can be a grueling and time-consuming process. Each lender will have its own set of application requirements. But here are the types of documents and information you’ll typically need to submit:
- W-2s from current and previous employers
- 1099s if you’re self-employed
- Recent pay stubs
- Recent tax returns
- Bank statements
- List of all your outstanding debts
- List of your current assets including money held in brokerage or retirement accounts
- Homeowner’s insurance policy documents
Tracking down all that documentation can take a lot of work and time. But most of us aren’t commuting to work right now and social activities have ground to a halt. So if you’ve been putting off applying for mortgage refinancing because life has just been too busy, now might be the perfect time to buckle down and tackle the process.
Related: A Guide to Refinancing Your Mortgage
The Risks of Refinancing Your Mortgage During the Pandemic
Regardless of when you refinance your mortgage, high closing costs are something you’ll want to watch out for and avoid. The higher your upfront costs, the longer it will take you to “break even” with mortgage refinancing.
Refinancing could also be a bad decision if it significantly pushes back your mortgage payoff date. However, beyond these general concerns, there are two specific risks connected with refinancing during the coronavirus crisis that you’ll want to consider.
Credit score requirements may be tougher than usual
One of the downsides to applying for refinancing during the pandemic is that you may have a hard time meeting lender borrower requirements. In response to the economic uncertainty and high demand, many lenders have recently increased their standards.
Wells Fargo, Chase Bank, and US Bank are just three of the many lenders that increased their credit score requirements in the past few weeks. According to the most recent release of the Mortgage Credit Availability Index, mortgage credit supply decreased by 16% in March–another sign that banks are implementing tighter restrictions.
If you have strong credit, these changes won’t be a problem for you. But if your credit score is closer to average, you may have a harder time qualifying for refinancing today than you would have had a couple of months ago.
Related: What is a Good Credit Score?
The process could take longer than usual
Lenders are trying to process two to three times their typical number of daily applications each day. Plus, like the rest of us, these companies are having to deal with the fallout of government shutdowns by moving their agents to in-home offices.
The combination of increased demand and a less-than-ideal work environment for their staff means that it could take a while for lenders to get around to your application. In fact, many banks are now offering 100-day rate lock-ins in anticipation of application backlogs.
Where Are the Best Places to Refinance Your Mortgage During the Pandemic?
Whenever you’re shopping for mortgage refinancing, you’ll want to get multiple quotes and be sure to compare interest rates and fees. But, during the coronavirus pandemic, it would probably also be a good idea to look for online-first mortgage companies.
Smaller community banks and credit unions that tend to focus on in-person customer interactions may have an especially hard time processing applications during the coronavirus lockdowns.
Online mortgage lenders, on the other hand, are built to process refinancing applications without requiring face-to-face meetings. Here are three of the best places to get a quote if you decide to refinance your mortgage during the coronavirus pandemic.
Quicken Loans (Rocket Mortgage)
The entire Quickens Loan Rocket Mortgage application process can be handled online. If you want to talk to a person, a Home Expert can give you a call. Quicken Loans will reach out to your third parties like your employer and insurance agent to get the information that they need.
If you’re approved for a Rocket Mortgage refinance, you can choose when and where you want to close and can schedule everything online. The company says they service 99% of their loans themselves.
Figure is a relative newcomer to the refinancing market, but they have a lot to offer. Their application is handled 100% online and you can check your pre-qualified rate without impacting your credit score.
Once you submit your application, Figure will ask you to link your financial accounts. Then their automated system takes care of gathering and verifying your documents for you. As a result, Figure says that many borrowers can apply in minutes as opposed to the average application which takes days to submit.
Figure’s refinancing loans come with 30-year fixed terms and they offer a cash-out option. Mortgages range from $100,000 to $1.5 million, while the maximum amount of cash out that can be taken out is $500,000.
Lending Tree is not actually a mortgage refinancing lender. Instead, it’s a marketplace that makes it easy to compare quotes from multiple lenders at once. It’s like a Kayak for mortgage refinancing.
The biggest advantage to using Lending Tree is that it could save you a lot of time. Instead of having to fill out a separate application with four or five lenders, you give your information once to Lending Tree. And it, in turn, shares your application with its lender partners.
However, the downside to Lending Tree is that you could quickly be overwhelmed with phone calls and email from lender agents within minutes of submitting your application. If you prefer having full control of who receives your information and when, Lending Tree won’t be the best fit.
With historically low interest rates available, refinancing during the coronavirus pandemic could be a great decision for many homeowners. Just know that you’ll need a strong credit score to qualify for the best rates. And, to limit hassle and delays, you’ll want to look for lenders that offer a strong online application process.