The coronavirus outbreak has been prevalent all over the world for some time and has been affecting major business sectors. A global emergency phenomenon, the number of cases has been rising by staggering numbers. The mortgage industry has been no stranger to this and is being affected equally.
Since March 03, 2020, the Federal Reserve slashed short-term mortgage interest rates by half a percentage point given the notorious COVID-19 outbreak and its corresponding damage. This was done to protect the mortgage industry economy. By this, it might also mean that mortgage shoppers can see themselves getting open to more opportunities or options.
But what exactly does this mean for homebuyers? Or then again, those hoping to secure a home loan rate? For homeowners thinking about refinancing? And what’s more, for those holding an adjustable-rate mortgage?
Let’s dive into the details.
Why did the Fed Cut Interest Rates?
Even before the impromptu rate slash from the Fed, mortgage rates began falling way before this enactment. The main reason behind the cut in federal funds rate is that the Fed has to catch-up to speed to the established mortgage rates, led by the mortgage market powers.
Ever since the discovery of the novel coronavirus towards the end of 2019, it has been a major threat that concerned the world’s stock and bond markets owing to its alarming outbreak and the breakneck pace at which it spreads. And this has caused a dilemma within sectors such as manufacturing, tourism, travel, hospitality, and even consumer spending, about how the vulnerability would be from the officially named COVID-19 outbreak.
The Fed has put their faith in lower mortgage rates in the hope that it will likely drive refinances higher, and lure home buyers out to shop for properties. But what if buyers show a skeptical attitude in property shopping because they don’t want to be near or decides to completely avoid contact with people? Well, without a doubt, home sales are certain to take a nosedive/crash and sink.
How Mortgage Rates get Affected
The interest rates utilized by banks to borrow from each other are managed or dealt with by the Federal Reserve. The movement of longer-term interest rates is laid on this establishment.
Although the decisions made in Fed rates do not directly affect mortgage rates, they can’t confront the bond market’s general heading/direction. Loans priced or estimated by lenders using the 10-year Treasury as a manual or guide, is at record lows, in terms of yields.
And mortgage rates can follow the same, probably in the near-term. As per the Nov 21, 2012 report by Freddie Mac, the 30-year loan is, as of now, drawing closer — and occasionally sinking under— the unsurpassed 3.31% low (with 0.70 discount points).
So who are the ones who could benefit from this news? Well, it would be those with or shopping for mortgages and home equity lines of credit, at adjustable-rate, and are under the direct guidance of Fed rate cuts. It could also be said that ARMs, in their next reset period, will probably go into lower rates, and there would be a fall in HELOCs in the next billing cycle or two, by a point of, half a percentage.
So what all has to be known, if You’re:
Buying a home
The main thing would be the tight competition from other buyers because there are insufficient homes available for sale to meet the demand.
There’s a restrained as to how much lower mortgage rates could spark deals on home sales due to the coronavirus outbreak. The biggest hiccup faced by today’s housing market is not the element of mortgage rates or the reasonable prices, but a scarcity in / shortage of options.
Considering the below strategies would make you win in a hot housing market:
- Sellers will have confidence if you have a mortgage preapproval. The preapproval letter gives a sense of the evidence that you can get a loan and that a successful sale will go through.
- Contingencies, such as requesting the seller to make repairs or pay your closing costs, has to be limited.
- If possible, let the seller know that you are flexible about the closing date.
Visiting homes around different locations is highly unlikely due to coronavirus outbreak fear, but if you’re committed to buying a home this year, don’t be reluctant, but just go for it. This will give you an edge over people who are waiting for things to turn out good.
Lenders are now under constant pressure and enduring massive workloads, just because numerous homeowners have decided to refinance. So you might find it difficult to get past this queue. What you can do in a civilized manner is by submitting a complete application online, with all the mandatory documentation. If there are missing documents or irregularities in the applications, it is much easier to know about it online.
- It is important to know the basis of your refinancing to get the right loan. It might be for reasons such as a lower monthly payment, a shortened loan term, or to replace your adjustable-rate mortgage with a low fixed-rate loan, to borrow or obtain more than you owe in a cash-out refinance, or to get rid of or dispose of the FHA mortgage insurance.
- Always shop from multiple lenders as it is bound to get you the most ideal deal. By comparing the disclosure document (Loan Estimate) from every lender, you’ll be able to recognize the best offer.
- By locking your rate for quite some time, say, for a standard 30 or 45-days for a refinance is adequate to close the loan on time. When large numbers of homeowners are refinancing at the same time, it is better to get a more extended rate lock. Approach your loan officer for guidance.
Always be cautious about getting a cash-out refinance, since taking all the money out might seem tempting, but not particularly in the case with a future recession, or your job security, it probably won’t be the best thought. So do not take out all your equity.