Depositphotos 18382383 s 2019

You don’t need anyone to tell you what a crazy year it has been. Every aspect of our lives – including the mortgage system – has been turned upside down by COVID-19. Indeed, it’s impact on home loans has been significant, and something that anyone who is looking to buy a home needs to be aware of. As such, here’s an overview of what has happened to the home loan market, how long it is expected to last, and how it may impact you even if you aren’t looking to buy a home.

Impact On Home Loans

The mortgage rate is lower today than it has been in decades. The current interest rate on a thirty-year purchase, as of September 9, is 3.06%.

Interest rates have dropped this low for multiple reasons. Investors have shifted their investments into less risky financial instruments in response to COVID-19 and the economic havoc it has wrought. These include putting their money into Treasury bonds. As a result, interest rates have tanked, and this has had an impact on home loans.

Rates have also dropped as a direct result of changes to federal policy in response to COVID-19. The Federal Reserve cut interest rates in order to make it easier for people to borrow money and allow for economic expansion to continue despite the obvious current struggles of the economy. These interest rate cuts typically have reverberations that are felt throughout the economy, and one of those areas is mortgage loans, which have tanked since the start of this crisis.

How Long Will Loans Stay This Low?

One survey of financial analysts found that 83% believe interest rates would either hold steady or continue to fall in the near future. This is because the United States economy appears to be having a relatively slow job recovery from the COVID-19 crisis. As a result, the Federal Reserve is likely to keep interest rates low for the foreseeable future in order to stimulate demand, borrowing, and the United States economy as a whole.

In other words: If the United States economy continues to struggle, interest rates are likely to remain low. This is obviously bad news for the economy in general but can be great news for people who are looking to purchase a home or refinance.

Now Is The Time To Refinance

This is the absolute perfect time to refinance. According to at least one survey, up to $16 million Americans had the opportunity to refinance their home loans, potentially saving as much as $283 a month in interest payments. Obviously, depending on your situation, the savings here could be significant – potentially as high as tens of thousands of dollars over a lifetime.

Refinancing interest rates are slightly different than purchase interest rates and usually run higher. As such, the opportunity to time the market is harder, and it is better to start refinancing today, rather than wait for your interest rate to drop lower.

When it comes to refinancing, you have multiple options. You can refinance at a lower interest rate and for the same time period of the course of your loan. Depending on how long you have been paying your mortgage, this may give you the opportunity to save hundreds of dollars on every monthly payment that you make. It would also extend your payments and add interest payments to the lifetime of your loan, however.

Conversely, you could shrink the amount of time that you have to pay your loan. This would involve something like switching from a 30-year loan to a 15-year loan. This would likely make it so that you didn’t save as much money over every monthly payment, but it comes with other benefits, like reducing the interest rate and ultimately reducing the amount of time in which you pay the loan back.

Everyone has a different financial situation. Your best bet is to talk with your financial advisor. However, it is important to remember that home loans are low right now – lower than they have been in years. This is a great opportunity.