We have been receiving endless calls, texts, and emails from past and future clients asking about refinancing their mortgage.
First of all, thank you for trusting us to be your mortgage advisor. We truly want the best for our clients. Our goal is to educate and provide information on what is happening in the mortgage markets and with mortgage rates.
Watch the video below to get a brief summary of the pressure upward on mortgage rates:
There are several other factors affecting mortgage rates as a result of the Coronavirus.
- Lender capacity – There are currently over 11 trillion in mortgages outstanding. About half have rates that may be lowered by refinancing. The entire financial market (banks, mortgage lenders etc) fund around 3 Trillion per year in volume. A huge wave of applications came in in that short 2 week span of historically low rates. To slow down application, banks and lenders increase rates to which reduces the benefit of refinancing.
- The mortgage backed security market is extremely volatile. The buyers of Mortgage backed securities are seeking shelter in cash and treasury notes. (Could you imagine if we have a 20% unemployment rate – people will not be able to pay their mortgages). With less demand, rates go higher.
- Early Pay Off Penalties – If a loan if paid off within 6 months of origination, the lender and originator get his with thousands in fees. If they drop rates and refinance people too quickly they will have huge losses.
- Lastly lenders have to “Hedge” the markets. In simple terms, this is where lenders buy an insurance policy to insure the locked loans against volatility. This covers to an extent, however, if markets change a significant amount, they have to contribute large amounts of capital. This has happened several times recently so banks and lenders have major liquidity risks.
In Summary, rates may drop back down over time, but with the volatility, pricing has gone up significantly in the past two weeks. There has never been a more important time to work with a mortgage professional that knows, watches and understands the financial markets.
Clients that may benefit from refinancing at this point are those that would like to receive cash out or do a debt consolidation. Now is a great time to leverage the equity in your home to reduce your monthly expenses. Reach out to us at 800-555-2098 if you are interested.