Mortgage rates held at record lows for the second straight week, which could present an opportunity for some homeowners to increase their emergency funds.
The 30-year fixed-rate mortgage averaged 3.13% for the week ended June 25, unchanged from the previous week, Freddie Mac reported Thursday. Comparatively, these loans had an average rate of 3.73% a year ago.
The 15-year fixed-rate mortgage increased one basis point to an average of 2.59%, while the 5-year Treasury-indexed adjustable-rate hybrid mortgage fell that same amount to 3.08%.
“Mortgage rates were flat today as investors remained concerned about the economic and property outlook, following the drop in existing home sales this week and the reduced forecast for global GDP from the International Monetary Fund,” said George. Ratiu, economist at Realtor.com.
The low rate environment has made refinancing a more attractive proposition overall for many Americans.
But cash withdrawal refinancing, through which homeowners can take advantage of part of their home equity, have gained additional importance in the context of the country’s unstable economy.
“A cash withdrawal refinance can also provide borrowers a breather should they find themselves in a short-term financial challenge,” said Rick Sharga, a veteran of the mortgage industry and founder of CJ Patrick Company, an estate consulting firm. estate. firm.
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But getting a retirement refinance could be difficult right now. Most banks have significantly restricted their mortgage lending activity amid the coronavirus pandemic. Many require borrowers to have higher credit scores, lower debt-to-income ratios, and a stronger employment history than before the outbreak to qualify for a loan.
Borrowers working in industries affected by the pandemic may face an additional burden in qualifying for a new mortgage, experts said.
Lenders have also mandated that borrowers have larger down payments, which means a lower loan-to-value ratio. That could limit how much a home owner could take out if they can find a lender willing to do a cash withdrawal refinance.
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Many studies have shown that a significant portion of Americans lack an emergency fund to cover unexpected expenses or a loss of income. As unemployment claims continue to be high, having access to home equity can be helpful in the unfortunate event that an owner loses her job or faces a cut in wages.
But retirement refinancing is not foolproof. “Borrowers need to be careful not to take advantage of their capital, spend that money, and accumulate new debt with higher interest, that’s a loss-and-loss scenario,” Sharga said.
Time can also be of the essence. “The recent surge in coronavirus cases in various states across the country has only increased uncertainty, making it increasingly difficult for lenders to price at the right amount of risk and measure the long-term value of the loan they’re broadcasting, “said Matthew Speakman, an economist at Zillow.
That said, if this increase in COVID-19 case volume continues, mortgage rates would surely drop further to new record lows; however, rates would likely increase if states can demonstrate they have control over the virus. ” Speakman added.
Low mortgage rates also benefit home buyers, naturally, as it makes the transaction more affordable. But even here, there will be limits for buyers to take advantage of the low rate environment.
In addition to the additional challenges of qualifying for a loan, the real estate market remains highly competitive thanks to the low supply of homes for sale.
“Uncertainty about jobs is keeping many sellers on the sidelines and the sharp decline in the number of homes for sale is pushing prices above their pre-pandemic pace and making homes less affordable for buyers currently in the market, “said Ratiu. “Low mortgage rates can only go so far as to motivate buyers when they find reduced credit availability, fewer homes, and higher prices.”