Should you refinance your home?

Posted at 7:51 AM, May 06, 2020
and last updated 2020-05-06 08:51:23-04

Social distancing restrictions and stay at home orders around the country have now been in effect for longer than one month in many areas.

With much of the economy shut down to try and slow the spread of COVID-19, Anthony Pennington-Cross, the Robert B. Bell Chair of Real Estate in Marquette University’s College of Business Administration, expects the real estate market to suffer.

“The thing to remember about housing is it reflects everything around it,” Pennington-Cross said.

With many Americans currently out of work, he said demand for houses will be lower.

“People have to have jobs to move,” he said.

Pennington-Cross said the housing supply is also taking a hit due to COVID-19.

“A lot of people have pulled their homes off the market,” Pennington-Cross said. “They don’t want strangers walking through their homes right now.”

“We’re going to see transactions plummet,” he added. “There’s not going to be a lot of activity. So if I’m a realtor, I’d be very concerned. It’s going to be hard to do any buying and selling.”

While some mortgage lenders are offering deferred payments for homeowners who’ve been laid off, Pennington-Cross noted that money will have to be paid eventually. Those payments don’t just go away.

The longer workers continue to feel the economic impact of COVID-19, the larger the holes will be that they have to dig out of. Homeowners will have to catch up on those payments when businesses reopen.

“We’re just into the process of people missing payments each month,” Pennington-Cross said. “The longer this goes, each month, it’s going to get substantially worse.”

On a positive note, he thinks it’s a good time for homeowners to refinance if they have the financial means to do so.

“It’ll cost you a couple thousand dollars to refinance,” Pennington-Cross said. “So do that if you think you’re going to be stable, and staying in your home for awhile. Because you want to recoup those upfront costs with the lower payments.”

He said, as a general rule of thumb, you should refinance your home if you can drop your interest rate by 2 percent or 1 percent.

If you can lower the rate by .5 percent, Pennington-Cross said it’s still worth considering if you’re planning to remain in your home for long enough to recoup the costs.

He said mortgage interest rates are currently hovering between 3 and 3.5 percent.

Pennington-Cross believes the reason they haven’t dropped lower is because lenders are concerned about people losing their jobs during the coronavirus pandemic and not being able to make their payments.

“So there’s no incentive to let some homeowners pay less if you’re not sure everyone will actually pay?” asked TMJ4 News.

"Yes, exactly,” replied Pennington-Cross. “Those things need to compensate for each other.”

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