How to decide if refinancing now is a good choice for you

By Sabrina Karl

With mortgage rates near their all-time lows, many homeowners are refinancing to lower their payments, shorten their mortgage, or convert some home equity into cash. Is refinancing right for you, too?

The answer depends largely on the mortgage you’re in. If you’re paying 4% or more, refinancing now is almost certainly a good economic move, as average rates are currently in the low to mid 3% range. But even if you have a mid 3% rate right now, refinancing can possibly still pay off, especially if you move to a shorter-term loan.

Another important consideration in deciding if now is a good time to refinance is the state of your credit score. The higher your score, the better rate offers you’ll receive. So consider if you can boost your score before applying to refinance, or if you can hold off on anything that would ding your credit (like applying for a new loan or credit card).

Of course, it’s important to confirm that your current mortgage allows for prepayment. Most do, but some involve a penalty for paying early. A penalty isn’t necessarily a deal breaker, but you’ll need to figure that cost into your calculations to decide if refinancing will make sense for you.

Planning to live in the house for a while, and having at least 20% equity built up are also key. You won’t want to pay for a refinance only to move in a couple years. And going below 20% equity would trigger costly private mortgage insurance.

Lastly, do you have time to do the research? Doing your homework not only on the best rates, but also on the refinance fees different lenders are quoting, is a bit of a project. You’ll need time to comparison shop and run the numbers to find your best loan.

Most mortgages in Covid-19 forbearance won’t require lump sum repayment

By Sabrina Karl

The stimulus legislation enacted in late March allows homebuyers experiencing financial hardships due to the coronavirus pandemic to request skipping their mortgage payment for up to 12 months.

But the legislation was devoid of details on how the missed payments would be handled, and confusion — among both mortgage borrowers and servicers — has been swirling.

Last week, the Federal Housing Finance Agency cleared things up, at least for the Fannie Mae and Freddie Mac mortgages it regulates, which account for 70% of U.S. home mortgages.

FHFA Director Mark Calabria said in a statement that borrowers benefiting from pandemic-related programs allowing them to skip mortgage payments, referred to as forbearance, will not have to make lump-sum payments when the crisis passes.

“During this national health emergency, no one should be worried about losing their home,” Calabria said in the statement. “While today’s statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach.”

The FHFA’s statement does not mean the payments won’t eventually need to be made. Rather than be forgiven, they will be deferred. But this is welcome news to borrowers who wondered, or had even been told, that at the end of their forbearance, they’d have to cough up all the missed payments in a lump sum.

As more Americans find themselves out of work or with reduced incomes due to Covid-19, the share of homebuyers requesting forbearance has climbed steadily. In the Mortgage Bankers Association’s latest weekly reading, almost 7% of borrowers had delayed making payments.

The FHFA said those in forbearance will be contacted before the end of their current agreement to discuss options, from tacking the payments onto the end of the mortgage to establishing a separate repayment plan to modifying the loan.

How low are mortgage rates exactly?

By Sabrina Karl

You keep seeing it in the news: Mortgage rates are at all-time lows. But how low is that? And when was the last time we came close to rates like this?

The headlines refer to Freddie Mac’s national weekly mortgage rate average. Freddie Mac has been surveying U.S. mortgage lenders since 1971 to compile weekly averages for 30-year fixed, 15-year fixed, and 5/1 adjustable-rate mortgages. The rates included in the survey have an 80% loan-to-value ratio.

Freddie Mac collects its rates every Monday through Wednesday and reports the weekly averages every Thursday at 10 a.m. ET. Last Thursday, the 30-year fixed-rate average was 3.31% APY.

That’s just 2 basis points above the lowest average Freddie Mac has ever recorded since it began tracking in 1971. On Thursday, March 6, the average was a record-setting 3.29% APY.

But how does this compare to the past? Did we just set the record by a few basis points, or a wide margin? What about the record lows of 2012?

A look at rate averages since 1971 shows that rates today are nothing like those in the 70s, 80s, or 90s. During those three decades, the average 30-year rate never fell below 6%. And dipping into the 5% range didn’t happen until late 2002.

It then took us until January 2009, another 7+ years, before we ever dropped into the 4% range. And then another three years before we first hit the 3% range, in October 2011.

Then came Nov. 21, 2012, when the 30-year average sunk to its previous historic low of 3.31% APY.

That means today’s average closely matches the previous low, when millions of Americans refinanced. But since few were lucky enough to lock in the very lowest rate, significant opportunity exists for millions to score a second chance.

Homeowners requesting a mortgage extension jump 1,000 percent

By Sabrina Karl

With the coronavirus pandemic disrupting many Americans’ financial stability, and Congress passing the CARES Act, the door has been opened for U.S. homeowners to make special requests for mortgage forbearance. And the numbers have skyrocketed.

Forbearance refers to an agreement between a homeowner and their mortgage lender that monthly payments can be reduced or paused entirely for some agreed upon period. A plan for later repayment is established, and the lender cannot foreclose during forbearance.

We’ve now seen the release of the first monthly forbearance data since the pandemic took hold in the U.S., and March’s figures have come in at record levels.

According to the Mortgage Bankers Association, which regularly reports on the percentage of mortgages in forbearance, the share of homeowners who have been granted more time to pay their mortgage jumped from 0.25 percent in February to almost 2.7 percent in March.

That’s roughly a 1,000 percent increase, but the requests are likely just getting started. For one, the survey was conducted on April 2 for activity during March, and the CARES Act was passed very late in the month, on March 27.

Second, it’s expected that households experiencing negative financial circumstances from the pandemic will find their expenses increasingly difficult to cover with each continued week of stay-at-home measures. For example, a homeowner who is able to make her first mortgage payment after losing her job may not be able to muster the next payment.

Forbearance numbers were highest among Ginnie Mae-backed loans, such as FHA, VA, and RD mortgages, which tend to serve low- to moderate-income borrowers. Here the forbearance rate for March was 3.45 percent vs. just 0.19 percent in February.

It is strongly recommended that anyone who feels they may need to request forbearance  should contact their mortgage lender as soon as possible.

If you’ll need coronavirus mortgage relief, communication is vital

By Sabrina Karl

The CARES Act passed last month offers some relief to homeowners struggling to pay their mortgage due to coronavirus impacts. The tricky thing is that, so far, the relief is not one size fits all. So talking to your lender sooner rather than later is imperative.

The CARES Act has so far provided two kinds of mortgage relief: a moratorium on any foreclosures until at least the middle of May, and the option for homeowners suffering income or job loss due to the pandemic to postpone mortgage payments for 6-12 months.

But whether you qualify for this relief, and when you’d need to repay the missed payments, depends on who owns your mortgage. The CARES Act applies to federally backed mortgages, which account for about 70% of U.S. home loans. Meanwhile, non-government loans may offer their own relief terms.

But it’s not always obvious which type of loan you have, as federally backed mortgages can be serviced by a bank. In addition, banks also service loans they own themselves. So the first step is figuring out who actually owns your mortgage.

The second confusing issue is that, so far, uniform rules have not been specified on when homeowners must pay back their postponed payments, which is called forbearance. So while some lenders are willing to tack those payments onto the end of the loan, others are requiring a balloon payment after 90 or 180 days.

Then there is also the wild card of not knowing whether Congress will approve or extend additional mortgage relief. Only passing time will answer that question.

As a result, if you think you may need mortgage relief, it is critical that you call your lender as soon as possible to begin the conversation, with long phone wait times being an additional reason to not delay.