While most people across the U.S. are isolating themselves in their homes to protect themselves and loved ones from the COVID-19 outbreak, some are using the time to refinance that very home.
In the beginning of March, the Mortgage Bankers Association reported that the Refinance Index increased to the highest level since April 2009. Yet some consumers may wonder if it’s worth the time to refinance, some will ask if their application will take time given the large volume of requests, and still others may wonder what is true and untrue in a time where misinformation is spreading almost as frequently as the pandemic itself.
I don’t think we know yet the full extent of the impact this pandemic will have on the home-buying season.
“These are unprecedented times for sure,” said BBVA USA Head of Consumer Direct Mortgage Lending Bob Jones. “I don’t think we know yet the full extent of the impact this pandemic will have on the home-buying season this year, but the historically low interest rates have created a refinance boom. So lenders are dealing with abnormally high pipelines right now.”
To help divide the current refinancing myths from reality, below are myth-busting items Jones provided in terms of the current refinancing landscape:
Myth: I won’t save that much money by refinancing - OR - I need to save at least one percent for it to be worthwhile.
Jones: Depending on your current mortgage rate and how much the closing costs associated with the new loan are, even a small reduction in your rate could yield significant savings over the life of the loan. On the other hand, competitive rates alone may not be enough to justify refinancing if you don’t plan to stay in your home long term. The longer you stay, the more likely you are to reap the benefits of the lower monthly payments refinancing can provide.
Myth: I can’t refinance because I don’t have 20 percent home equity.
Jones: Some products allow customers to refinance up to 95 percent or even 100 percent. Most, but not all, of these products will require Private Mortgage Insurance (PMI). However, again, depending on the interest rate on your existing mortgage compared to the new mortgage, you could still save money each month even after the addition of PMI.
Myth: I just purchased last year, so I cannot refinance.
Jones: If you’re not pulling cash out of your available home equity, and if you’re only refinancing the existing mortgage balance, there is usually no waiting period. It really depends on whether or not you’re able to lower the interest rate by enough to justify paying closing costs all over again so soon. BBVA USA is currently working on various requests, including on refinance requests from people who got a mortgage last year. So people can certainly take advantage of the lower rates, even if this was the case.
Myth: I don’t have enough money to pay for the closing costs.
Jones: Most loans do require some up-front, out-of-pocket fees - such as appraisal and credit report - but you may actually roll the rest of the closing costs into the new loan amount in most cases. Remember, though, that if you finance closing costs, you’ll be paying interest on those costs as well as the underlying mortgage debt. Crunch the numbers and consult with a qualified mortgage professional to see what makes sense for you.
Myth: BBVA USA, like other companies, have stopped their mortgage sales
Jones: While there have been some mortgage companies that have stopped part or all of their mortgage product sales, BBVA USA is continuing to provide a high level of service in the mortgage industry. We have managed to establish a remote working model very rapidly for our mortgage workforce to ensure uninterrupted continuity of our mortgage business. I would encourage our customers to go to our mortgage inquiry page to start speaking with someone on our team.
The bottom line from Jones:
“Refinancing needs to make financial sense, and there needs to be a tangible financial benefit,” he said. “No two customers are the same. No two loans are the same. I’d recommend being ready, as mortgage rates change daily. In volatile markets, they sometimes change multiple times in a single day. Have a preliminary conversation with a mortgage banker, now, to get your ducks in a row. Get concrete numbers, ask a lot of questions so you’re prepared to make an informed financial decision. Our team is working hard - and remotely - and is ready to answer your questions.”
For more information, customers can call 1-888-8-LENDING or visit the BBVA USA mortgage inquiry page.