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Should San Francisco homeowners refinance into a 30-year or 15-year mortgage during coronavirus?

By Ben Luthi
Published  June 5, 2020 1:48pm PDT
Personal Finance
Sponsored by Credible, which is majority owned by our parent, Fox Corporation. Credible is solely responsible for its services.
Credible-30-15-year-home-mortgage-iStock-1205239772.jpg article

Refinancing your home loan could save you money in the long run, but financial struggles could make it difficult to qualify.

The coronavirus pandemic has had a devastating impact on the U.S. economy, and 4.75 million homeowners have sought mortgage relief through forbearance programs, according to housing data provider Black Knight. 

At the same time, the current economic environment has also caused mortgage interest rates to plunge to record lows. This trend may cause some homeowners to consider refinancing their mortgage, possibly with new loan terms.

What are the current mortgage rates?

Mortgage rates can vary based on daily fluctuations and your creditworthiness. However, according to Trulia, the San Francisco average rate as of June 1 for fixed-rate loans is 3.43 percent for a 30-year mortgage and 2.801 percent for a 15-year mortgage.

If the interest rate on your current mortgage loan is higher than these averages, it may make sense to consider a mortgage refinance loan. You can visit Credible to compare rates and lenders in your area.

HOW TO GET THE BEST MORTGAGE REFINANCE RATES

That said, it’s important to consider both the benefits and drawbacks of mortgage refinancing, especially during a pandemic and economic downturn.

The pros and cons of a mortgage refinance

While we’re seeing record interest rates on the low end of the spectrum, refinancing may not be right for everyone.

Here are some advantages to consider:

  1. Potentially lower monthly payment: If you complete a mortgage refinance into a 30-year mortgage, it could help you reduce your monthly payment, even if you don’t get a lower interest rate. That’s because if you’ve been making payments on your loan for a few years, extending that term to 30 years again can result in lower payments.
  2. Take advantage of a shorter term: 15-year mortgages come with lower interest rates because they present less of a risk to lenders than a 30-year mortgage. If you can afford a potentially higher monthly payment with a shorter term, it could help you eliminate your debt faster and save money on interest charges.
  3. You may be able to access equity: If your emergency fund balance is low, a cash-out refinance could allow you to tap some of your equity to bolster your savings, which can come in handy during an unpredictable economic situation. This can especially be a good option if your home’s equity has increased dramatically since you first purchased the home.  

IS IT WORTH IT TO REFINANCE FOR 1 PERCENT?

Despite these benefits, there are also some pitfalls to keep in mind, whether you’re considering a mortgage refinance for 30 years or 15 years:

  • It may be tough to qualify: If your financial situation has changed because of the pandemic, it may be challenging to qualify for a home refinance. Even if your situation hasn’t changed yet, consider the odds of it happening in the near term. Getting laid off or furloughed in the next month or two could negatively impact your mortgage refi application.
  • Closing costs may neutralize your savings: Scoring a lower interest rate or longer repayment term can help you save on mortgage payments. But the loan’s closing costs, which can range from 2 to 5 percent of your loan amount, can wipe out those savings. To determine if refinancing is the right move, divide your total closing costs by your monthly savings. This will tell you how many months it’ll take to break even, and if you plan to stay in the home longer than that, a mortgage refinance may be the right choice for you.
  • You may see some delays: Low rates mean that many homeowners are seeking to refinance their home loans, and there have been reports that some lenders are overwhelmed, causing delays in the approval and closing process. If you’re hoping to complete the process quickly, it may be better to wait until lenders have a chance to get through their backlogs.   

THE BASICS OF NO-CLOSING COST MORTGAGE REFINANCING

Should you refinance your mortgage loan?

Mortgage refinancing can be a lengthy and expensive process, but if you’re in a solid financial position and can expect long-term savings from a new loan, it may be the right decision, even in the midst of a pandemic.

However, if the health of your finances in the short term is in question, you may find it difficult to get approved for a loan. Take time to understand the state of your financial well-being and how a mortgage refinance can help you. 

If you’ve decided that refinancing your home loan is right for you, visit Credible to find personalized rates and lenders all in one place.