The Residential Mortgage Landscape During the Coronavirus
By Craig Strent of Apex Home Loans, Guest Blogger
Many of our clients are thinking about their overall financial plan and making appropriate adjustments to ensure they stay on track with their financial goals – this includes real estate. We turned to Apex Home Loans CEO & Co-Founder Craig Strent to share his perspective on the mortgage market given today’s environment. He is a thought leader in the industry and a knowledgeable resource when exploring home financing options.
We appreciate Craig for providing his take on the mortgage market for our readers. He offers a video format as well. Read on and click here for Craig's video.
Fixed Mortgage Rate Landscape
Rates for residential mortgages were historically low in the first quarter of 2020 and then the coronavirus Covid-19 hit and set them off on a roller coaster ride. Early in March, 30-year fixed rates touched on 50 year historical lows at the 3% mark. Shortly thereafter, FED overbuying of Mortgage Backed Securities along with the evaporation of mortgage servicing rights due to forbearance relief in the CARES Act sent rates temporarily higher with a jump of almost 2%. Since that time, markets have stabilized and 30-year fixed rates for loans below the conforming loan limit of $510,400 remain attractive in the low 3’s with 15-year fixed rates in the high 2’s.
HELOC as a Resource to Consider
Homeowners with mortgages above $ 510,400 are struggling to find the same low rates in the conforming jumbo loan tier from $ 510,400 - $765,600 and the JUMBO loan tier above that. A common alternate loan structure at the moment is to use a $510,400 first mortgage combined with a home equity line of credit (HELOC) to make up the difference. HELOC’s are tied to the Prime Rate + a margin and with PRIME currently at 3.25%, this is an attractive way to avoid higher rates. The addition of a HELOC is also useful for those homeowners considering how they might finance home improvements or as a means to consolidate higher rate debt. Homeowners with existing HELOC’s not currently being utilized have a valuable back stop to tap into if they are having any disruption in their current income streams due to the corona virus.
Refinance in Context with Your Overall Financial Planning Goals
For those homeowners considering a refinance, many approach the task by looking at both the 30-year and 15-year fixed rate options. Comparing these two options is like comparing apples and oranges. Deciding which option is best for a particular homeowner requires looking at the mortgage in the context over the overall financial plan.
The 15-year fixed rate mortgage will likely result in higher payments, but significantly less interest paid over time. Those homeowners that are fully funding their financial planning goals, on pace to achieve them at their targeted dates, and who have excess cash flow in their budgets, are good candidates for 15-year fixed rate loans, keeping in mind that there may be some negative tax consequences.
The 30-year mortgage liberates cash flow that can then be redirected to take advantage of employer sponsored retirement plans, college 529 plans, and proper insurance coverage for the homeowner and their family. Historically, the after-tax cost of a mortgage is lower than the after-tax return on investing and those homeowners that follow a disciplined approach to investing will be in a position to pay off their mortgages in a lump sum ahead of its due date. They will also enjoy the benefits of additional liquidity, which of course creates financial security, as funds held outside the home are easily accessible. Remember that home equity is a less liquid asset and extra payments to principal yield a low to minimal return on investment and carry a potentially large opportunity cost.
About Apex Home Loans
Since day one at Apex Home Loans, we've been committed to finding you the perfect mortgage to meet your financial goals. Over time, we've built an in-house infrastructure to drive efficiency, a transparent loan process to provide peace of mind, and an unforgettable customer experience. In addition to helping you purchase a home or refinance an existing mortgage, we also manage your mortgage for its lifetime, reward community members who go above and beyond, and drive positive change in our communities. With nine branch locations, Apex is licensed and positioned to service MD, DC, DE, VA, PA, NJ, FL, and WV. Learn More
About Washington Wealth Advisors
Washington Wealth Advisors is an independent registered investment advisory firm serving high net worth families and small businesses. We focus on holistic financial planning and comprehensive investment management. Leveraging our core strengths of unbiased, active investment management together with a detailed annual financial planning capability, we serve your comprehensive investment and financial planning needs.