The old maxim “buy low, sell high” is not just a Wall Street mantra. It is actually the aim of every homeowner in Washington state and throughout the U.S. Unless substantially wealthy, most homeowners pay more than the sales price. They also pay for the money borrowed to afford the sales price. The cost of borrowing is called interest, and it can add up over time. This is why many people refinance when interest rates fall, to save themselves from paying more than necessary. It is a pattern repeated again and again, and it is happening today in Washington.
What Is Happening with Interest Rates?
With the onset of the coronavirus, COVID-19, the Federal Reserve Board of Governors effectively dropped the benchmark rate to zero. Given the closures of so many businesses and enterprises; the layoffs, temporary and otherwise, of countless employees, and the economic slowdown following government orders to shelter in place, the national economy needed a major shot of stimulus. The rate reduction was specifically intended to lower the cost of money and credit. The Fed’s move is having some impact across the United States, and in the state of Washington in particular.
Since the summer of 2018, low interest rates went lower for 30-year fixed, 15-year fixed, and 5/1 adjustable rate mortgages, though these numbers held fairly steady through the fall of 2019. By mid-April of 2020, the 30-year fixed product hovers around 3.51 percent in Washington state. This is a very attractive figure for those property owners who purchased their homes with a mortgage priced at 5.375 and borrowed, say $300,000. The reduced interest rate represents more than $300 per month back in the borrower’s pocket. It is a tidy sum to keep each month and makes mortgage refinancing a desirable option.
Mortgage Refinancing Activity in Washington State
As prospective interest payments shrink, the decrease in loan applications due to the global pandemic of COVID-19 has begun to turn around. As of April 10, 2020, the Mortgage Bankers Association reports that the volume of refinancing applications across America soared by 10 percent over the previous week and nearly 200 percent since the same week in 2019. This spur in applications is by far an increase in refinancing requests. In fact, purchase applications continue to decline. It is, therefore, reasonable to assume that the low-interest rates are inviting households to consider mortgage refinancing.
According to the Seattle Times, the average price of a single-family residence went up by nearly eight percent in Kings County and elsewhere in the state. This is significant not only to those selling their homes. Homeowners will find additional incentives to refinance as their loan-to-value (LTV) ratios change in their favor because they have just obtained additional equity in the property. They may even opt for a cash-out option in order to make improvements to the property or to consolidate debt. Although it may be too soon to tell how Evergreen State application numbers compare to other states enjoying low-interest rates, the rise in values can doubtless jack them up. What are the sales prices in your neighborhood?
Have Rates Ever Been This Low?
Nearly 50 years ago, FreddieMac, Federal Home Loan Mortgage Corporation, started surveying a wide range of lenders to look for trends in mortgage rates. During the 1970s, inflation rates were high and getting higher, peaking at an annual rate of almost 10 percent in 1981. This left mortgage rates hovering between 18 and 19 percent for a conventional 30-year fixed-rate loan. In 2012 they reached their floor — 3.31 percent. Although rates have yet to sink that far, it is certainly possible given the Fed’s recent actions in reaction to COVID-19 difficulties. If so, lenders will be swamped with mortgage refinancing candidates. Are they ready??
Are WA Mortgage Lenders Equipped for an Application Surge?
Washington, like most states, recognizes finance and credit activity to be an essential service. Therefore, banks, brokers and correspondent lenders continue to originate, process, underwrite and close mortgage loans during the coronavirus pandemic restrictions. Many institutions have reduced their workforces or otherwise enabled more personnel to do their jobs from home. As the weeks pass, the lenders grow more efficient under these new business arrangements. Yet the question remains whether they can absorb a large increase in applications under this regime. Technology, of course, aids in this effort immensely.
For tech-savvy mortgage lenders, online applications are the norm. In most cases, applicants receive a prequalification based on a single submission. Getting approval requires documents to backstop the representations on the loan application. If prospective borrowers have access to a scanner, even hard copy papers can be uploaded to the lender’s online portal. Appraisals are also formatted for electronic transmission. Once everything is received, the assigned underwriter can evaluate the application. A conventional, owner-occupied refinance that does not exceed a conforming loan amount is frequently underwritten with an automated program. Yet even unorthodox loans can be reviewed remotely if necessary.
Appraisers are taking care to maintain health and safety during the pandemic. Fortunately, many refinances are approved with property inspection waivers or drive-by valuations. Furthermore, federally-chartered investors like FannieMae and FreddieMac are highlighting their expanded acceptance of drive-by appraisals for refinances. Closings are made possible through Washington’s Uniform Electronic Transactions Act (UETA) and acceptance of e-notarizations. This allows settlement agents to close loans without gathering a crowd in the office. Recording offices in counties may accept all such documentation provided they are technologically equipped to receive electronic forms.
Should I Refinance My Home Mortgage?
As noted above, the plummeting of interest rates and the rise of home values might make the prospect of refinancing irresistible, especially a no-cost one. Yet a lender with both competence and ethics knows that each homeowner maintains different financial interests from others. Even under optimal conditions, refinancing now may or may not be the best course of action for everyone. Discussing the matter with a seasoned mortgage professional can assist in clarifying the benefits and side-effects of property refinance at this juncture in economic history. He or she can explain the fees charged and conditions to be satisfied when applying for and receiving a new loan. Do not apply with questions outstanding. Talk to a knowledgeable loan officer first.
Sammamish Mortgage has been around since 1992 and has helped plenty of homeowners in the Pacific Northwest. If you are looking for mortgage financing in Washington, Sammamish Mortgage can help. We have a variety of mortgage programs in Washington, Oregon, Colorado, and Idaho. If you have any finance or mortgage-related questions, you can contact us. You can also View Rates directly on our site or even Apply Instantly or get an Instant Rate Quote.
