How mortgage refinancing has changed amid the coronavirus pandemic
The coronavirus pandemic has completely changed life. Many changes will be temporary, but some may last forever. One bright spot was the Fed’s decision to chop interest rates. The average 30-year fixed mortgage rate is now 2.8% and the 15-year fixed mortgage rate is currently 2.33%, according to Freddie Mac.
Even the process to apply and qualify for a mortgage or refinance is different from pre-COVID. There are new fees and longer processing times. Qualifying online or in-person can be more complicated. It’s anyone’s guess if these changes will last. But one thing is certain, refinancing your mortgage before rates climb any higher might be a smart move.
Explore all of your mortgage refinance options by visiting Credible to compare rates and lenders.
To date, there have been 306,000 mortgage refinances, down from 382,000 last quarter and up from 97,008 last year, according to US Mortgage Originations. That’s an increase of 215.5% from one year ago. Before you take the plunge, there are several changes due to COVID that you should know before refinancing your mortgage, including:
- Trends in mortgage rates
- Adverse market refinance fee
- Applying online or in-person
- Longer processing times
1. Trends in mortgage rates
The Fed says its likely keeping short-term interest rates near zero through 2023. There is no firm date set by the Fed when interest rates will go up, even if inflation kicks in. Treasury bills are also likely to stay below 1% for a while.
Last week, Freddie Mac posted these interest rates:
- 30-year fixed-rate mortgage: 2.81%
- 15-year fixed-rate mortgage: 2.35%.
Today, interest rates dipped a little, and now stand at:
- 30-year fixed mortgage: 2.8%
- 15-year fixed mortgage: 2.33%
In December 2018, the rate on T-bills was 2.67%. The rate on a 30-year loan was 4.55%. But unlike years past, it’s difficult to forecast if interest rates will continue to jump, remain flat or decrease again. The Feds' commitment to keep interest rates low is good on paper, but if inflation takes off, it may find itself backpedaling.
To increase your chances of obtaining the lowest refinance rates, make sure you compare mortgage lenders. Luckily, there are free online tools available that make refinancing your mortgage easy. By entering some simple information, you can pre-qualify in minutes.
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2. Adverse market refinance fee
Originally scheduled to take effect on September 1, 2020, the Federal Housing Finance Agency (FHFA) delayed implementing the "adverse market refinance fee" by Fannie Mae and Freddie Mac until December 1, 2020.
A new refinance fee of 0.50% will be used to offset projected COVID-19 losses to Fannie Mae and Freddie Mac. Specifically, the actions that were taken to protect borrowers and renters by providing loan forbearance, modifying mortgage terms to reduce monthly payments, provide protection against evictions, and ensure flexible loan processing. Refinancing a loan balance below $125,000 is exempt to shield low-income borrowers from further financial hardship.
So, on a $350,000 mortgage refinance, you would see an out-of-pocket fee of $1,750 when your loan is sold to Freddie Mac or Fannie Mae.
In addition to the adverse market refinance fee, your lender will likely charge closing costs, loan origination fees, and appraisal fees. If you have any mortgage refinance questions, you can always use Credible to get in touch with experienced loan officers.
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3. Applying online or in-person
Because of COVID-19, applying to refinance your mortgage has become a choice of convenience. You can choose to visit a bank branch and speak with a loan officer face-to-face or go online and find a lender that may get you a loan almost immediately – if you qualify.
In most states, visiting a branch office will require you to wear a mask. You may have to sit six feet apart in a closed office and sign documents in another area of the bank or credit union. The greatest benefit to meeting face-to-face is that if anything goes wrong, you have the name of a person to reach by phone or visit in the office. You will also be building a relationship at the bank, so if you ever need a loan in the future, you know where to go.
You can also apply online with various lenders, each offering different rates based on your credit score and history. Some online lenders have superior customer service, and often will prequalify you for a loan on the spot. All of this can be done from the comfort of your home using Credible.
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4. Longer processing times
Initially, the coronavirus pandemic made getting a loan more difficult. But over time, things have relaxed a bit, making refinancing easier and more affordable. That said, because of disruptions from the pandemic and the recent high demand for mortgages by homeowners who want to take advantage of low rates, processing times are longer than in the past.
This mortgage refinancing process can take anywhere from two weeks to two months. At the start of the pandemic, processing times were even longer. This was due in part to higher credit requirements and delays caused by processing applications and qualifying borrowers remotely.
Mortgage lenders were also slow to flip the switch on mortgage refinancing because of the financial and economic uncertainty caused by the coronavirus pandemic. Today, processing a mortgage refinance loan takes about 30 days from start to finish.