Rock-bottom interest rates and financial struggles are helping drive a massive wave of mortgage activity across the country, most of it refinancing existing loans.
Better.com, a digital-direct lender based in New York City, says it funded $1.4 billion in mortgage loans in April alone, including an 80% surge in cash-out refinancing since the coronavirus pandemic began in March.
Better Mortgage Corporation, operator of Better.com, was founded in 2016 and last September announced plans to hire 1,000 people to work in a new office being built in Charlotte, North Carolina.
Here, co-founder and head of operations Shawn Low answers five questions about what he’s seeing in the market and whether now is a good time to refinance a mortgage.
Why have we seen such a surge in cash-out refinancing since the pandemic began?
Shawn Low: Many businesses are struggling, and unemployment is at an all-time high. There’s a lot of uncertainty for people, and it’s understandable to want to have more cash on hand to meet unexpected needs. This is coinciding with a period where rates are at an all-time low. A cash-out refinance enables people to meet their short-term liquidity needs by tapping their home equity — while doing so at an attractive rate.
Why in general is now a good time to refinance, especially if you plan to stay in your home?
Shawn Low: We’ve seen lower rates during this pandemic than we have seen over the past decade. Many homeowners who might have locked in higher rates in prior years have an opportunity to save money, consolidate debt, and/or take out cash at an attractive rate. Our general advice is to not try to time the market. If the numbers make sense to help you achieve your financial goals, that’s when it makes the most sense to refinance.
The cost of waiting to see if rates go lower could backfire, not making it worth the risk. The best rule of thumb is that if the numbers make sense, seize the opportunity. Savers who want to build wealth can flip the disadvantage of low interest rates on saved cash to an advantage by locking in all-time-low mortgage rates and saving on their monthly mortgage payment.
Other than simply getting the cash, what are some specific reasons homeowners are refinancing?
Shawn Low: Just saving money on their current mortgage, for starters. We’ve also helped many borrowers use that built-up equity in their homes to consolidate debt. We’ve also assisted borrowers who want to change their loan term; shorter loan terms can help borrowers save on interest over the length of the mortgage, while longer loan terms can help to lower mortgage payments in the short term. With rates as low as they are, there are many ways for borrowers to benefit from a refinance. So, it really comes down to your situation and financial objectives.
Any specific advice for investors in rental properties or home flippers right now?
Shawn Low: Frankly, the trends in the real estate market are a little mixed at this point. For investors, this uncertainty presents more risks but also greater opportunities to find properties at a discount. This coupled with a lower cost of financing through low rates could help drive stronger returns over the longer term.
We’ve seen over the past two months a softening of the real estate market. In general, home sellers are nervous about selling during this time. On the other hand, we’re starting to see early signs of a recovery in purchase activity, including online searching, home prices, and application volume. There’s also a reason to believe that pent-up demand will drive a huge late-summer market.
Any final tips for homeowners seeking to refinance?
Shawn Low: Lots of homeowners are trying to refinance. However, we see a handful of common mistakes, including not asking for a loan estimate, or not asking about no-cost or low-cost options so you don’t have to pay as much out of pocket, or at all. (Those options can include lender credits that let you lower closing costs in exchange for a slightly higher rate or roll your closing costs into your new mortgage balance.)
You should also ask about your eligibility for mortgage discounts. Affordable lending programs and discounts are often available to experienced homebuyers and refinancers, not just first-time homebuyers. Many lenders just don’t have the tools or incentive to check your eligibility for these programs and pass the savings on to you.
For example, we worked with one refinance customer who was eligible for a HomeReady discount but wasn’t told about it when they got their first mortgage. Later, when they were looking to refinance, another lender mistakenly told them they weren’t eligible. Better.com was able to help them refinance with the discount, so they paid only $137 in closing costs and saved $280 on their first mortgage payment alone.