There is one silver lining amid the economic crisis that the United States is currently facing due to the COVID-19 pandemic.
Aspiring and current homeowners across the nation are witnessing the lowest interest rates for home loans in decades. Naturally, people want to take advantage of it.
Despite the mass unemployment, many American households are looking into taking out a mortgage loan to refinance their existing plan or to acquire their home for the first time.
Americans Hurrying to Refinance Their Mortgages
Freddie Mac reported that mortgage refinancing activity is up at the end of the first quarter of 2020. The surge was caused by the sudden and steep plunge of interest rates in March, which, at the time, was the lowest in decades. On average, the interest rate for a 30-year fixed-rate mortgage was 3.45, lower than the 4.27% posted the year before.
The refinancing activity in the first three months of 2020 increased by about 65% of first-lien single-family mortgage applications. Cash-out borrowers, those who raised their loan balance, make up nearly 50% of the refinancing activities this year.
Borrowers who refinanced in the first quarter of 2020 decreased their rate by 0.75 percentage points on average.
Mortgage Rates Keep Falling
Those who waited before they refinance are now enjoying lower interest rates. For the 10th time this year, mortgage rates for the 30-year and 15-year fixed-rate mortgage.
This week, rates dropped to 2.81% and 2.35% for 30-year and 15-year loans, respectively.
Mortgage rates have been falling since March, but whether it remains low for the next couple of weeks and months remains to be seen. Regardless of what the future will bring, applications for both types of loans remain high. Purchases are up 24% this year compared to the same time last year.
American Homeowners Regret
Many homeowners have already taken advantage of the low mortgage rates, but not everyone ended up being happy about it.
LendEDU, a marketplace for different financial products, surveyed a thousand American adults who currently have an outstanding mortgage from a private lender. The majority (94%) became homeowners before the pandemic. Only 6% acquired a home with the help of a mortgage after March this year.
The company found that 55% regret taking out a mortgage during the pandemic.
About 72% of those who borrowed a home loan during the pandemic to buy a house cited COVID-19 as the primary reason they decided to become homeowners this year. Over half of new homeowners took advantage of the low mortgage interest rates.
Out of those who admitted to regretting taking out a mortgage, 30% said that they should have waited for a financial reason to become a homeowner, 10% said they should have waited for social or life reasons, and 7% were not ready to become homeowners yet.
Things to Consider Before Buying a House
While the current mortgage rates are low, people who want to take out mortgage loans this year should first think it through. Buying a house is a huge investment that the borrower will pay off for the next decade or three.
Therefore, an aspiring homeowner should never rush the decision to take out a mortgage purely because of the current rates. They should consider whether they are ready for the commitment, both financially and personally.
Financially, they should have some money stashed into their savings account for emergency purposes. Right now, the economy is in turmoil, and experts expect the recovery to be slow. If the homeowner loses a job or if a sudden illness strikes the family, their savings should be sufficient to pay for necessities, hospital bills, debt, and other expenses.
Homeowners should also be ready for all the excess costs involved in the process of buying a home. Although the property may be in good condition, the new homeowner will likely find damages that need to be repaired immediately before moving in.
The homeowner should also be ready to dedicate time and effort to maintaining a house. Unlike renters, homeowners can only rely on themselves to fix what is broken. They would have to find and pay for professionals who have the skills to address electrical, water, and other issues that will pop out throughout their stay.
Owning a house should be a decision made after careful consideration. It may take years before an individual or a family is ready to move into their own home. The process of shopping for a loan and looking for the right property takes several months more. Although mortgage rates are good now, aspiring homeowners should not take out a loan and buy a home unless they are truly ready to avoid regrets.