Why buying a second home is more difficult since COVID-19
The U.S. real estate market started 2020 strong. Before the COVID-19 pandemic hit, it was generally the best time of year for sellers to list a home for sale. However, with closings and stay-at-home mandates, the housing stock was never able to recover as buyers returned to the housing market.
As Americans began to have more freedom and flexibility with remote working arrangements, combined with low mortgage rates, real estate demand grew with limited supply, creating a lightning-fast sellers’ market. The housing market has outperformed all other economic sectors in the country.
With mortgage rates at historic lows, now might seem like the best time to buy a second home, but it won’t be as easy as you think.
Consider refinancing your current home loan first
Before you start shopping for a second home, consider first refinance your current home loan. With interest rates currently falling, now may be the best time to lock in a good rate before it starts to rise again.
If your goal is to lower your monthly mortgage payment or save money, you will need to use an online mortgage refinance calculator to determine if refinancing your current home is a good option. You can also head over to Credible to work out the numbers and figure out your estimated monthly payments and more.
Refinance your current mortgage can potentially provide one or more of the following benefits:
- A better mortgage rate
- A lower monthly mortgage payment
- A shorter mortgage term
- Refinancing by collection
1. A better mortgage rate
A better mortgage rate could mean substantial savings. A 1.0% rate deduction on a $200,000 home with a $160,000 mortgage saves you $100 per month. It may not seem like much, but over a 30-year term, it saves you $30,000 in interest.
2. A lower monthly mortgage payment
A lower rate can lower your monthly payments and put you in a better financial position. If you pay less interest, you have more money to work with each month. This extra money could be better spent in a retirement account or towards another long-term financial goal.
To see how much you could save on monthly payments today, analyze the numbers and compare mortgage rates and lenders using Credible’s free online tool. You can also use a refinance calculator to help you determine the impact of a new home loan on your personal financial situation.
3. A shorter mortgage term
Many buyers buy a home with a 30-year mortgage and choose to refinance at a 15-year fixed rate mortgage. If you have 20 years left on your mortgage and refinance it to a 15-year mortgage, the lower interest rate and shorter term will significantly reduce the amount you pay in interest.
4. Refinancing by collection
You can borrow money against the equity in your home with a cash refinance. It can be a cost-effective option if you need to borrow.
If you are considering refinancing, consider using Credible. You can use Credible’s free online tool to easily compare multiple mortgage lenders and see pre-qualified rates in as little as three minutes without affecting your credit score.
The pros and cons of buying a second home in 2021
This past year has been unique to say the least. Although millions of Americans are taking advantage of low interest rates, buy a house in 2021 has its advantages and disadvantages.
First, these mortgage rates won’t stay low forever, but there’s a good chance they will for the rest of the year. Lawrence Yun, chief economist of the National Association of Realtors, estimates that mortgage rates will remain stable with a slight increase for 30-year fixed rate mortgages. The Federal Reserve has also indicated that this low interest rate policy will continue for a long time.
Low mortgage rates mean you pay less interest over the life of the loan. With these rates, borrowers can save a considerable amount of money.
However, the current housing market has been a challenge for buyers. A vibrant seller’s market means increased competition due to low housing inventory. As buyers compete in bidding wars, that means bidding higher to beat the competition.
red fin, a Seattle-based real estate brokerage, reported national median home prices hit a new high of $320,625, a 15% year-over-year increase. Combined with low mortgage rates, that might not seem like a bad deal, but you might not be able to get a return on your investment if or when you decide to sell.
Another potential obstacle for borrowers is that mortgage lenders have become more demanding. Due to the economic impact of job loss due to COVID-19, many lenders have changed home loan requirements and the borrower assessment process to mitigate the increased risk of default and late payment. Borrowers with lower credit scores may find it more difficult to obtain financing when looking to purchase a home.
Do you have mortgage questions? Visit Credible to connect with experienced loan officersand get your mortgage questions answered.
The bottom line
Low mortgage rates are attractive, but buying a second home in 2021 will be a challenge and buyers should be prepared. Before applying for a mortgage, be sure to shop around first. Explore your options by visiting Credible to compare mortgage rates and lenders without impacting your credit score. And while you’re thinking about your budget, you should use an online mortgage calculator to determine potential monthly mortgage payments.