To refinance or not? Q&A on mortgages and refinancing in today’s low interest rate environment
Interview Jody Canfield, July 1st, 2020
Today I wanted to bring a good friend Jody Canfield, mortgage broker with Watermark home loans, because I've been getting so many questions during CoronaVirus and the crazy low-interest rates about mortgages from clients. I wanted to bring in an expert and ask her some of the most frequently asked questions that I've been getting.
Laurie: Thank you so much, Jodi, for joining me!
Laurie Question #1: My first question is what are some of the biggest (if any) changes that you have noticed since the times went crazy with CoronaVirus and the super-low interest rate environment?
Jody: No not much has changed as far as what you need to provide to complete a loan other than sometimes Fannie Mae and Freddie Mac will allow an appraisal waiver on your file. This waiver is more readily available right now where before it wasn't and that just simply means that you may not need an appraisal to complete your loan when underwriter reviews and confirms it. If that’s the case then you just saved $500.
Laurie Question #2: Because we live here in southern California and our homes are expensive, the loan values are also big. Tell me about what's going on with jumbo loans right now?
Jody: As I mentioned before Fannie Mae and Freddie Mac insure loans up to 510,400 so if you're loan amount is above that, then it's a bigger risk for a bank. Banks are having liquidity issues and they want to spread their eggs across several different baskets so they're looking for lower loan amounts. That means a higher balance loan interest rate is going to be much higher.
Laurie Question #3: Balances over $510,400 are really common here in southern California. What are your suggestions for clients who might be finding it hard to get their jumbo loan financed?
It really depends on their individual situation. If they can, wait for the market to open up. I have a lot of clients that have all of their supporting docs and they are ready to go for when that opens up, because when it does, it’s going to be really busy. Otherwise, if you absolutely have to refinance or you're trying to purchase a property, the rate is the rate. With rates in the 4.5% range (which is still not a horrible rate), you would finance it with the hope that rates continue to hold and when the market comes back you're able to refinance into a lower rate. There's of course no guarantee on that, so you want to make sure that when you finance that property you are comfortable with the payment at the rate that you finance at,because again, there are no guarantees right now.
Laurie Question #4: I've been hearing a lot about something about zero interest rates and the fed.. can you shed some light on what that even means?
Jody: I get the calls all the time. As soon as the Fed set interest rates to zero I had a bunch of people call and say so can I get a 0% rate? The answer is no, while the fed interest rate does help drive interest rates down, it doesn't mean mortgage interest rates are going to be 0. Rates are a little bit higher than they should be just because things are so flooded with loans that they're f keeping rates a little bit higher. I mean still 2.875% on the 30-year fixed it's crazy but they're keeping it just a little bit higher because they can't take all that volume if they were to lower down to like 2 and 1/4 on a 30-year fixed.
Laurie Question #5: I think this is just to help everyone as they start this process if they are thinking about refinancing or even selling a home and buying a new one. what are things that everyone who is refinancing or going into a new mortgage should be aware of?
Jody: First, do not be afraid to ask questions. It's kind of like when your shopping for a mattress or a carpet and there's all it's the same thing but they call it something different at every single place. If you're not 100% sure what your loan officer is trying to tell you, make sure that you ask because no points for me means something different than no points with a different loan officer and it is very very important that you understand what you're getting because it can cost you a lot of money. Make sure that you're pairing with a little officer that is patient and will answer your questions thoroughly. There's no such thing as a stupid question yeah only you're stupid for not asking and you got yourself into that situation. My clients don't do loans for a living so they're not expected to know every single little thing and especially with the disclosure that lists out all the fees which is called a loan estimate, it's important to understand what's going on with that. If it's confusing ask!
Laurie Question #6: What are some general situations where someone might come to you and end up telling them ‘I don't think it's in your best interest to refinance?’
Jody: That happens all the time, say for instance someone's in a 10-year fixed or has less than 10 years to repay on their loan, typically I'll tell them to hold it, regardless of their interest rate, because they're not going to see the benefit soon enough. Another reason is if you're moving in 6 months sometimes it makes sense to refinance, but you have to really check and make sure that you're seeing the benefit before you plan on selling your property or moving. It all has to do with how much are you paying and when do you see the benefit for that lower payment and that lower rate.
Thank you so much Jody for all the information. I really appreciate you and will make sure to put your information in the description in case our client have more questions for you.