The stock market has dropped significantly recently mostly due to Coronavirus fears. Lower mortgage rates often occur as an indirect result of a stock market drop. Read below and tune in to podcast episode 011, where I sit down with my wife Alison to have a casual conversation about whether it makes sense to purchase a home or refinance an existing mortgage during a market drop.
Why Mortgage Rates Tend to Go Down During Significant Stock Market Drops
The stock market and mortgage rates are not directly related. However, during big selloffs people tend to flock to bonds because they’re looking for safety. Mortgage rates tend to mimic 10-year treasury bonds. Your lender might not want to sit around and wait 30 years for you to pay them back. Instead, they sell the mortgages which are converted to bonds and traded in the bond market.
How a Mortgage Refinance Works
You can refinance a mortgage loan just like you would a car loan, a personal loan or a student loan. However, the process might be more complex because there are many factors to consider. You have to have a credit check, verify your income, and have the property appraised. There are also costs involved. You can pay these out of pocket or include them as part of the new loan, thereby increasing your loan balance.
The Different Types of Refinances
There are different reasons why you would refinance your loan. For example, a rate/term refinance allows you to change the rate of your loan into a lower one, or you can change the term of your loan, like going from a 30-year mortgage to a 15-year mortgage. Another type of refinance is a cash-out refinance. If you have enough equity in your home, you can take cash out in order to do home improvements, consolidate debt, etc.
What About Purchasing a Property When Rates are Lower?
If you were already planning on purchasing a home, doing so while rates are lower can be beneficial in two ways. The most direct benefit is being able to have a lower payment for the same purchase price. The second benefit is being able to afford a more expensive property for the same amount of money you were planning on spending in the first place.
Whether you’re planning on purchasing a home or refinancing your existing mortgage be sure to consult with your financial planner to make sure that you do what’s in your best financial interest. Looking at your overall financial situation is a better approach than just focusing on the mortgage by itself.
Be sure to listen to episode 011 of my podcast where I sit down with my wife Alison to have a casual conversation about whether it makes sense to purchase a home or refinance an existing mortgage during a market drop.
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Investment Advisor Representative of Retirement Wealth Advisors Inc. (RWA), 89 Ionia NW, Suite 600, Grand Rapids, MI 49503 (800) 903-2562. Investment Advisory Services are offered through RWA. Build a Better Financial Future and RWA are not affiliated.
This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal, medical, or tax advice. You are encouraged to consult your tax advisor, doctor, or attorney.