COVID + Credit: Should I Refinance My Mortgage Now?
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Recently, the Federal Reserve (“The Fed”) took action to lower interest rates, one of several moves to help provide reassurance and support to the national economy. That may have you saying “Now is the time to refi my mortgage!” It's important to look at all factors when evaluating if now is the right time to refinance your mortgage.
While it's true the Fed has lowered its interest rate, that doesn't necessarily mean your available mortgage rate is going to be lower. The Fed controls key short-term interest rates, not mortgage loan interest rates. And while often the changes to key short-term interest rates are followed by similar moves in mortgage rates, that's not always the case. Mortgage rates more closely follow the 10-year US Treasury notes, and there have been some different moves in Treasury note yields that do not mirror the short-term interest rates.
So, have interest rates gone down or up? The best answer is to research and find out. Not only are banks managing mortgage rates to mirror other benchmark indices, they also manage liquidity. If many people request refinances at the same time, the higher demand gives banks less reason to lower rates to draw additional refinance customers. Also, the impact COVID-19 has given to our financial system has banks valuing liquidity. A steady flow of money must be available for mortgage products in the financial markets to provide banks with the money for creating new loans for refinances. If there's any upset to that market, it can impact available mortgage rates higher or lower.
As a result of these large financial trends over the past few weeks, some mortgage rates have increased slightly while others have lowered. The best advice for you is to ignore the headlines, do your homework, and assess if now is the right time for you to refinance.
Some additional considerations, unique to this time of COVID-19, relate to social distancing and non-essential government shutdowns. These may not seem like they will impact you, however they may also play a role in your refinance process. In many jurisdictions around the country, government recording offices are closed or operating with reduced staffing. That means some title searches or deed filings performed by lenders cannot be processed or may be delayed in processing. In addition, in-person services like appraisals, home inspections, notary services, and even in-person closings may be unavailable or modified.
To best deliver services during this unprecedented time, there are reports of unique practices happening. Some closing attorneys have been conducting closings with parties in their cars - each person with personal, disinfected pens. Some appraisers are only assessing the outside of the home or structure. Some lenders are doing digital verification of titles. For you as the borrower, it's best to stay flexible and work with all of the parties involved with your transaction to figure out the best solution to keep everyone safe and complete your refinance.
If you're ready to refinance, it's best to start your research now. Find the best mortgage rates and terms for your situation, create a list of potential lenders, and be ready to be patient to see that it all gets carried through. And one great step to begin your refinance journey is to assess your current credit standing. You can create a myEquifax account to get six free Equifax credit reports each year. In addition, you can click “Get my free credit score” on your myEquifax dashboard to enroll in Equifax Core Credit™ for a free monthly Equifax credit report and a free monthly VantageScore® 3.0 credit score, based on Equifax data. A VantageScore is one of many types of credit scores.