Does COVID-19 have you hoarding your money? Are you afraid to spend for fear there will be another housing crisis like 2008? You aren’t alone.
Did you know that refinancing now has perfect timing? You may not think it makes sense, after all, refinancing costs money, but there are many reasons you should consider it.
Housing Prices are Still Stable
We haven’t seen a crazy shift in housing prices yet. That means if you had equity in your home before, you probably still do. Why not take advantage of that equity and tap into it now while your home’s value is still high?
Equity is the difference between your home’s value and the amount you owe. For example, if your home is worth $300,000 and you owe $200,000, you have $100,000 in equity. Many lenders allow a loan-to-value ratio of up to 80%. This means you may have as much as $240,000 outstanding at one time. Before housing prices fall, why not take advantage of your equity?
Refinance Rates are Low
The Fed lowered the Fed rate to 0%. While mortgage rates won’t ever be that low, they did fall and are some of the lowest rates the industry has seen. Why not take advantage of the rates, especially if you want to tap into your home’s equity?
Interest rates on cash-out refinances are typically higher than a rate/term refinance. With today’s low rates, you can get a lower rate and tap into your home’s equity. You may still save money.
Even if you don’t want to use your home’s equity, lowering the rate can reduce your monthly payment. Who doesn’t want to save money, especially right now?
Lenders are Slow
Right now is a great time to negotiate the best rates and fees on your refinance. Lenders are slow, which is a switch from the start of COVID-19 when they were so busy they had to turn borrowers away. Now they want your business. You are in the driver’s seat.
Negotiate rates with lenders and comparison shop. Find the best rates available based on your qualifications with each lender and compare your options. Try getting the same terms from each lender so you compare apples-to-apples so to speak.
In other words, if you apply for a 30-year term with one lender, apply for the same loan with other lenders and compare the costs and interest rates. Look at the big picture – what will the loan cost over its term, not just monthly?
Stash Away an Emergency Fund
If COVID-19 taught us anything, it’s that we all need better emergency funds. Who knew the economy would be shut down and millions of people would be out of jobs? Most of us didn’t see this coming and without an emergency fund, it’s impossible to get through.
Tapping into your home’s equity when rates are low is a great time to get the cash out of your home and into a liquid account. While we hope we never see anything like this again in our lifetime, being better prepared is crucial for all of us.
Make Your Payment More Affordable
If you’re still employed, consider yourself lucky. Will it last? No one knows. If you refinance now while you still have a job, you can best prepare yourself should you lose your job too. As the virus taught us, no job is secure. Everyone is at risk of becoming unemployed.
Going back to the importance of the emergency fund, unemployment is a key reason. Without a job, you need to rely on reserves if you want to keep paying your bills and keeping yourself out of financial trouble. Even with unemployment benefits, many families struggle. Knowing you have equity in your home that you can tap into now, while things are okay for you is a proactive measure you can take to protect you and your family.
If you’ve thought about refinancing, but COVID-19 held you back, consider it. Now is a great time to tap into your home’s equity and get great rates. Even if you don’t need cash out of your home, refinancing to get today’s low rates, saving money on your monthly payments is a great way to get yourself ahead during these difficult times.