Neuswanger: Can you refinance if you have been impacted by COVID-19?
While mortgage interest rates have dropped for many types of loans, many borrowers are finding that they cannot qualify or that rates have not dropped for every loan scenario.
Notably, rates for loans under $510,400 are quite low right now, in many cases in the low to mid 3% range for a 30-year fixed. If your loan amount is between $510,400 and $729,750 the rate will be in the upper 3% range to low 4% range, unless you wish to pay a discount (1-2% of the loan amount) to buy the rate down. Do some serious math before deciding if buying the rate down is worth the effort, often it can take 5-10 years to recoup the initial cost.
If your loan amount is above $729,750 you are going to find your options limited, and don’t plan on a 30-year fixed rate. The rates are pretty reasonable right now but restrictions do apply. Typical jumbo loan programs these days are fixed for 5 to 10-years with a 30-year amortization and adjust annually after the initial set period. I just quoted a potential client at a rate of 3.25% (with no origination fee) on a $2,000,000 mortgage that had a fixed rate for 5-years.
However, if your goal is to pull some cash out of your home right now may not be a good time to do it. One of the impacts of the virus on financial markets has been that lenders are very cautious of allowing homeowners to pull cash out of their homes fearing that if the real estate market drops those who have already pulled substantial cash out of their homes may have little incentive to stay in a property if they have diminished or negative equity. As a result, cash-out loans, while available, are very expensive. If your loan to value is over 60% on a cash-out deal the interest rate could soar over a full percentage point.
The other issue preventing many from refinancing is the current high unemployment numbers. As has always been the case, you have to be able to prove you are making enough money to qualify for a mortgage loan. Unemployment insurance income generally does not count towards qualifying.
This is also problematic for business owners who were ordered to close even after they reopen. Lenders need to feel comfortable that the business is back to close to normal cash flow and profitability. Restaurants, for example, may not have the same margins if they are limited to 50% capacity, and will patrons find it worth spending the money for a socially distanced restaurant experience?
Business owners who were closed down but now reopened and would benefit from a refinance should explore their options because different lenders have substantially different standards and rules. In some cases if the borrower has substantial liquid assets and a low loan to value there is less scrutiny.
Getting the right mortgage loan can make a huge difference in your financial success in life. Now, if ever, is not a time to go it alone or rely on a online lender who has a call center sucking in applications — you need a seasoned trusted pro to guide you through the process.
Chris Neuswanger is a mortgage loan originator at Macro Financial Group in Avon and may be reached at firstname.lastname@example.org or 970-748-0342. His web site is www.mtnmortgageguy.com.
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