Are you stuck with a high mortgage payment? Maybe you’ve heard that rates are at historic lows and wondered if you should refinance now.
Money expert Clark Howard says you can save a substantial amount of money doing a mortgage refinance under the current conditions.
But before you take the plunge, you’ve got to assess your financial stability in light of the economic disruptions that the coronavirus is causing.
Here’s What You Need to Know About Doing a Mortgage Refi Today
The coronavirus is looming large over every part of our lives. Fears that the virus could send the economy into a recession forced the Fed to cut interest rates. That, in turn, helped push mortgage rates to the lowest they’ve been in 50 years.
It’s only natural that homeowners don’t want to miss out on all the money-saving action. They’ve been swamping lenders with calls and emails for quotes on mortgage refis, according to The Wall Street Journal.
Refi Questions From Clark’s Audience
Clark has taken several questions from people looking to do refis right now, too. In one instance, he heard from a woman named Bernice, who wrote in with a question for his Ask Clark segment.
Bernice was six years into a 30-year mortgage with an interest rate of 4% — but it was a balloon loan with a rate that was set to go higher in four years.
She was looking to refinance into another 30-year fixed rate at today’s low interest rates. However, Clark wasn’t excited about Bernice adding more years of debt back into her life — even at a lower interest rate.
“With today’s low interest rates, you’re going to see a substantial reduction in your monthly payment. But I do get nervous about you adding six years of additional debt into your life,” Clark said in response to Bernice’s question.
“One thing I’d like you to look at is doing a 20-year mortgage instead of having your 24-year loan go back into a 30. If that’s not practical for you, though, go ahead and do your 30-year refi because you will save a substantial amount of interest doing that.”
Meanwhile, a man named Eric called into the radio show with a question about doing a 20-year refi.
Eric and his wife wanted to go from a 30-year mortgage to a 20-year mortgage at a favorable interest rate — and pull some cash out in the process. The end result would be that their payment would go up by $140 a month.
But Eric was worried about the impact of coronavirus on the economy.
Clark told Eric it’s likely we’ll have eight to twelve weeks of economic dislocation in the wake of the pandemic. Both Eric and his wife say that their jobs are stable, so they were not worried about being out of work.
Once he heard that, Clark gave Eric the OK to move ahead with the refi.
“If your jobs are with an employer [where] you’re not subject to that employer melting down over the next few months — and you’re going to still see a steady paycheck — then I would feel comfortable telling you to proceed with the refi.”
What Should I Know Before Getting a Refinance Quote?
Historically, credit unions have been one of the best places to do a refi.
“But one thing you’ll find right now is they’re overwhelmed and the mortgage brokers are overwhelmed, too,” Clark says. “So many people are trying to do refis right now. Really it’s a matter of you trying to contact as many potential lenders as you can. See who you can get rate quotes from. Get a realistic idea of when you can close.”
On that last point, in general, we’re hearing that what used to take a few weeks could now take a few months. That’s because of the extreme rush to refinance.
Finally, be sure to read up on Clark’s simple rule of when to refinance your mortgage here before making this move.