Refinancing Your Home During COVID-19

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Like you, I’ve been spending a lot of time in my home. My husband and daughter are providing me with joy in the midst of a dire global situation. Well, I’ve gotten many questions about refinancing your home during COVID-19: Should I refinance? What should I look out for? There’s no better way to answer these questions than from personal experience. Here’s my story: 

I was so happy this week when we closed on refinancing our home, and we did so just two days after our two-year home anniversary in our current home. If you need a refresher on refinancing, you can read all about the mechanics on student refinancing here, which is an articulation of why and when refinancing makes sense - now, this is for student loan refinancing, but the mechanics are the same for any loan type. For home refinancing, you potentially get the added benefit of re-appraising your home and using the equity in your home through a cash-out refinance or home equity line of credit (HELOC) if you so desire.  

We locked in a rate of 3.1% for a new 30-year fixed rate loan, and with the decrease in rate, we will save approximately $450 per month on our total mortgage payment (principal, interest, and insurance). You might be shopping for a refinancing rate lower than 3% since the average mortgage rate just fell below 3% last month, and that’s good for you if you can get it - we decided to stop shopping around since most quotes for us hoovered around the 3.1% rate.  Over a year, that’s $5,400 in savings on our mortgage, and we’ve basically decided to cash in. We’ll break-even on the closing costs of $1,200 in just over three months, after which we will really start reaping the savings. 

Think about this - we will have automatic savings in our pockets that we can invest elsewhere. We (really my husband) spent several hours in the prior two weeks researching other rates, and that investment of our time has paid off. For us, we plan to invest those savings into our daughter’s college fund without working an extra hour. I’m a BIG fan of ‘less hours for more dollars,’ and refinancing provides such an occurrence! 

Now, I have to be honest -  I was a bit thrown off with the mortgage closing agent showed up at our house on Friday afternoon, mask in all, and a large packet full of closing documents along with her own sanitizer and bundle of pens. That unforgettable COVID-19 only experience is for a separate video. For now, you should know that we did what we needed to do in order to close.   

I want to encourage you to look into refinancing your home during COVID-19. Trust me, it’s a different process experience with COVID-19, but having just gone through it, the positive benefits are still there. I’ll leave you with some lessons learned:   

  1. Check your credit score before you apply. Remember, your credit score (mainly FICO) weighs heavily on the refinance rate. The higher your score, the lower your rate. You want the lowest rate possible, and you want to be properly prepared to take advantage of the lower rate. 

  2. Ask, and shop around for rates. Ask your current mortgage provider to provide you with a refinance quote. And then look around to other providers for a comparable, and potentially lower rate. In our case, our current mortgage provider matched any rate that we would come back with. Your current mortgage provider has a vested interest in keeping your loan with them rather than losing it to another provider.  

  3. Stay employed through the process. Banks and other refinancing lenders want to know that you are employed, especially during COVID-19. I know of several people who have not been able to close on their refinancing due to a loss in employment.   

  4. Decide if you want to have a separate appraisal. You should be able to get another independent appraisal on the refinance. Given the COVID-19 environment, lenders are more apt to look at comparable housing values in your neighborhood rather than send someone out to appraise your place. Make sure you study that appraised value because if you want to do a cash-out refinance or borrow against the equity through a HELOC, you want the highest appraised value possible and not rely on the bank’s comps.     

  5. Figure out how long you will live in the house. Your length of stay in your home should determine what kind of refinancing you want. Our plan is to stay in our current home for 5 years and thus we did not want to refin into a 15-year loan in order to reap the benefits of the lower payment to invest our money elsewhere. 

  6. Be mindful of the closing costs. Our closing costs were minimal, and lenders may try to bury these closing costs in the application. Pay attention - if you’re paying over 2-3% of your loan value in closing costs, be very very wary.

  7. Enjoy the process, and outcome. Celebrate your refinancing if you close. It’s important to honor how you’ve made a smart decision. If you cannot close, you now have steps to move toward a refinancing later. I suspect rates will stay low for a while longer, and thus you can try again soon.  

Now, everyone’s refinance journey is different, and you should evaluate your current situation with objectivity. It works for me and I’m sure it can work for your situation too.

Overall, however, I believe that refinance is a powerful way to make a big wealth creation move without much effort.

Have more questions about refinancing your home during COVID-19, or have your own experience that you want to share? Drop a comment below.  

Have a great week!