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A Quick Guide to Mortgage, Refinancing, and COVID-19

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When the Federal Reserve dropped interest rates to zero percent, mortgage lenders were inundated with refinancing requests. We immediately reached out to Don Anfuso, vice president of Homeland Lending, LLC, to find out what you need to know about mortgages, COVID-19, and what is involved with refinancing.

Is it worth it to refinance? 

When the interest rates dropped, many homeowners assumed their mortgage rates would drop as well. Unfortunately, that was not the case. The Federal Reserve rate cut directly affects the overnight rate in which banks lend money to other banks, not mortgage rates specifically.

"I got probably half a dozen phone calls when the Fed announced the rate cut," says Anfuso. "Some people were wondering if mortgage interest rates would drop to zero while others interpreted the rate cut as a great opportunity to refinance."

This being said, the Federal Reserve's actions in relation to rate cuts generally have a positive impact on mortgage interest rates. Thirty-year fixed rates dropped as low as 2.99% for a brief moment. However, recent assistance by the federal government in response to the COVID-19 pandemic have resulted in extreme volatility in mortgage backed securities. While rates have increased, they remain historically low at this time; the average 30-year fixed rate as of Wednesday (April 1st) was below 3.5%. 

But does it make sense to refinance your mortgage? 

Should you sign on the dotted line?

"It's really all about the numbers," says Anfuso. "There is no magic formula. I ask customers to send me their mortgage statements. After reviewing their current payment, how many years remain on their loan term, as well as their current rate, I present several different options for them to consider. We carefully review the options as well as what the customer wishes to achieve by refinancing, then determine how to proceed. By having customers participate in the decision-making process, they are given greater transparency on the terms and benefits available to them specifically."

If you decide to refinance, time might not be on your side, as the record low interest rates have created a traffic jam with refinancing applications. Lenders are at capacity, and recent layoffs and business closures will result in more stringent guidelines for approval considering the additional risk of non-payment from borrowers.

While the market has slowed because interest rates have increased from the initial rate cut, homeowners can still take advantage. "You're just not at 2.99% like we saw a couple of weeks ago," says Anfuso. "My clients who have benefited the most trust my abilities to understand when it's time to lock [in your interest rate] and when it's time to gamble. We don't make decisions based on 'hope' but instead we obtain and analyze real-time data, so we can react accordingly."

Anfuso assures the percentages won't stay this low forever, and that's essential to maintain a healthy and balanced economy. "However, if you can lock in rates while they remain in the 3% range and keep that mortgage for the next 5-10 years, you did very, very well."

How does a refinance work? 

First, you'll need to contact a trusted lender.

"Basically when you buy a house, you're financing the purchase," says Anfuso. "When you refinance, you're simply 're'-financing the loan you took out when you initially purchased the home."

Homeowners have an outstanding debt they are paying off, similar to a car loan. When a homeowner refinances, they pay off the more expensive, higher interest rate loan, and take on a new debt/mortgage at a lower rate and possibly different term. But homeowners don't have to start all over again with a 30-year mortgage.

"There's so many options nowadays," says Anfuso. "If you had a 30-year mortgage and you were 10 years in, you can do a 20-year loan. Some of us can offer flexible mortgage terms; for example I can offer mortgages with 22-, 23- or 24-year terms for people that are concerned about starting over again."

Just like any other type of loan product, the shorter the term, the better the interest rate because the loan will be paid off sooner. However, the shorter the loan term the more expensive the monthly payments become. This is one example of why rate isn't the most important factor to consider when borrowing money.

Why do you want to refinance?

"There's not many people out there today who can afford a 15-year mortgage, especially in the state of New Jersey when your mortgage amounts are $400 thousand plus," says Anfuso. "The cost of living is also relatively expensive."

To start the process, a homeowner should contact a local lender. "Working with an independent mortgage banker, a true professional who specializes in mortgage lending versus a teller at the bank or a big-name bank has its advantages.

Anfuso encourages homeowners to do their due diligence before choosing a lender for refinancing. He suggests not to make a decision based solely on the rate or an expensive TV/newspaper ad.

"Whether it's a mortgage broker, a mortgage banker, or a local bank, the overall costs and process should be similar when dealing with reputable lenders," says Anfuso. "The difference is in the execution of the process, customer service, and most importantly the knowledge of your mortgage advisor. In my 20 years of experience as a mortgage professional, you get the biggest bang for your buck when you use an independent mortgage broker."

Documents needed for home refinance 

Ready to refinance?

If you're looking to refinance, consider gathering these document requirements before giving a call to your local independent mortgage banker –

  • Your most recent mortgage statement.
  • Proof of income with your last two pay stubs.
  • Most recent two years of W2s – 2019 and 2018.
  • A copy of your homeowners insurance declarations page.

The mortgage broker will also look at your credit score and credit history, so it's a good idea to make sure you're always in good standing with your monthly obligations. Other considerations include two years of consistent employment and an assessment of your home's value. 

Postponing mortgage payments during coronavirus 

Learn all your options.

As unemployment numbers skyrocket, many homeowners wonder how they'll make their mortgage payments. Lenders have developed a mortgage forbearance program or a suspension of payments for those affected by coronavirus.

"It's not a debt forgiveness program," says Anfuso. "If you apply and qualify for the mortgage assistance program, your lender may give you up to a three-month suspension of your mortgage payment."

However, at the end of the three months, all payments will be due to bring the loan current. While this may not seem helpful or feasible for some homeowners, Anfuso explains why it's not as simple as forgiving or suspending debt.

"The companies that collect your mortgage payments are your mortgage servicers," says Anfuso. "In most cases they are not the owner of your mortgage debt. Mortgage servicers pay the owners of the debt the principal and interest payments you make on a monthly basis."

Consider buying your dream home.

The owners of the debt are mutual funds, pensions, and other financial instruments. The mortgage servicer is required to pay the owners of that debt regardless of whether payments are received. The performance and value of those financial instruments are based on receipt of payment.

Explains Anfuso, "Mortgage servicers expect a level of delinquency like any debt collector, but when delinquency rates increase to overwhelming numbers as a result of mortgage assistance for the masses, the servicer can no longer remain solvent and the value of your investments will decline."

But Anfuso sends an encouraging message that the housing market is strong and should remain that way.

"Before this recent pandemic, new construction and existing home sales were at 13-year highs," says Anfuso. "We're not back in 2008 when property values were overinflated. There is a lot of equity in the real estate market. You can make a very good argument that this may be the time to buy that home you have been looking for. Just in New Jersey alone, we've seen 5% appreciation year over year in the past couple of years, so there is light at the end of the tunnel," says Anfuso. "You just have to look for it."


Looking to purchase a home or refinance? Then contact Don Anfuso at Homeland Lending, LLC now.

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