Financially, millions of us were COVID-19 victims. Economies shut down, millions lost their jobs, and money wasn’t moving hands. The virus’s financial effects were just as great as the physical destruction it caused.
So how do you get out from under the financial disaster it caused? Does refinancing make sense during a time like this?
Right now, yes. Even people that don’t normally refinance may want to take advantage of the low rates and get their hands on their home’s equity.
Looking for Current Mortgage Interest Rates? Click Here.
Plan for the Unexpected
No one could have predicted the disaster that COVID-19 caused financially for millions of people. With a shutdown economy, no one expected what would happen and now we’re all paying the price. If there’s one thing we all learned from this, it’s to plan for the unexpected.
How can refinancing help you plan for the unexpected? If your home has any equity, you can tap into it. Take the equity out of your home and keep it in a liquid, but safe account. How do we know that another recurrence won’t happen? If we prepare now, maybe we can offset the financial issues that occurred this time.
Refinancing your Home
If you have equity in your home, consider taking it out. Even if you were keeping the equity in your home to use the full profits when you sell your home, emergencies change plans quickly.
Most people can refinance their home for as much as 80% of the home’s value. If you have a first mortgage on your home, you must deduct that amount from the total you can borrow. For example, if your home is worth $300,000 and you have a first mortgage of $100,000, you could borrow up to $140,000 or the difference between 80% of your home’s value and your first mortgage.
How should you refinance your home? You have a few options:
- A cash-out refinance includes your first mortgage. You refinance the first mortgage for an amount greater than you owe.
- A home equity loan or home equity line of credit gives you a second mortgage, leaving your first mortgage alone.
Looking for Current Mortgage Interest Rates? Click Here.
Why Refinance Now?
Why should you consider refinancing now? Interest rates are low. Will they get lower? No one truly knows, but the experts predict it. Do you want to take that chance though?
Even if you don’t think you need the funds right now because your job is stable, consider tapping into your home’s equity. Put the money away in a CD, bonds, or even low-risk stocks. The money can still grow even if you withdraw it from your home, but it will give you liquid funds should something occur again.
Also, we have no idea what will happen to the housing industry. Will housing prices drop? Will you lose equity? Why take a chance when you can have the liquid assets in your hands now? If the house values drop, you may be upside down on your loan, but you can cross that bridge if and when it happens. In the meantime, you’ll have the funds you need to prepare you for another go-around should COVID-19 strike the economy again.
Refinancing May Protect You
While refinancing can’t protect you from COVID-19 itself, it can help you offset the financial issues it may cause. Even with the economy opening back up in many states, there is still a long way to go. It’s important that we all do our best to prepare ourselves now.
You can refinance to tap into your home’s equity or you take advantage of the low rates and shorten your term. For example, if you have a 30-year term but can afford a 15-year term with today’s low rates, you cut your mortgage term in half. While your payment won’t change (it may even increase), you’ll own your home a lot faster, giving you even more equity in your home.
Whether you should refinance your home to protect you against the perils of COVID-19 depends on your financial situation. If you struggled through the crisis, preparing yourself for the future is important. If you made it through unscathed, but want to take advantage of today’s low rates, decrease your loan’s term and pay your loan off even faster, protecting yourself.