It’s time to discuss refinancing during a pandemic

The coronavirus is here, it’s real, and its impact is being felt nationwide. Not surprisingly, something so broad and potentially so dire is impacting real estate and mortgage financing.

“Nearly 1 in 4 home sellers nationwide are changing how their home is viewed while the home remains on the market due to the coronavirus outbreak,” said the National Association of Realtors (NAR) in mid-March. “The changes include stopping open houses, requiring potential buyers to wash their hands or use hand sanitizer, asking buyers to remove shoes or wear footies, or other changes.”

On the mortgage front, the story is more complicated. Mortgage rates are down as of mid-March but not as low as many borrowers expect.

The good news is that mortgage rates are objectively lower than in the recent past, according to research from Freddie Mac.

The average mortgage rate in 2018 was 4.54% versus 3.94% in 2019. That’s a drop-off of better than a half percent. In 2020 rates averaged 3.62% in January and 3.47% in February. For the week of March 5, weekly mortgage rates were at 3.29% for fixed-rate 30-year financing, the lowest rate seen since 1971 when Freddie Mac began collecting statistics.

These numbers represent real savings. Many borrowers believe rates should be lower because of sinking bond levels.

It’s usually said that mortgage rates and 10-year Treasury notes follow similar paths. The reason they tend to move up and down together is that investors see them as representing parallel levels of risk and reward.

For example, those who invest in mortgagebacked securities (MBS) worry about prepayment risk, the idea that with lower rates, borrowers will refinance. When a mortgage is refinanced, the income stream for investors comes to a sudden and abrupt end. To offset such risk, investors want a bigger return. That bigger return shows up in lender pricing as well as with the rates paid by borrowers.

“Mortgage applications increased 55.4 percent from one week earlier,” according to data from the Mortgage Bankers Association (MBA) for the week ending March 6, 2020. Refinance originations for 2020 are expected to double earlier MBA projections, according to the association.

We don’t know what the future will bring. But — for the moment — now is a good time to examine financing and refinancing options to see if any represent a good opportunity for you.