We talked with mortgage lender Kate Beck about the impacts COVID-19 will have on home mortgages. We discussed:
- Reprice options
- How much interest rates matter
- What she can do for homebuyers
- How to plan your personal finances during this time
In our 25+ years of working with lenders, we’ve found several who consistently go above and beyond for their clients. Kate is one of our favorites.
Kate thinks rates will fluctuate wildly over the next several months—sometimes changing several times during one day. Some lenders will not weather this time and will go out of business, so make sure you work with a reputable bank and a real mortgage person.
Reprice Option: Take it!
During this turbulent market, make sure your lender offers a reprice option and find out how much that reprice option costs. For example, Wells Fargo charges 0.125% to reprice after a lock (on a $700k loan, the reprice option requires a $875 one-time fee)
Having a reprice option means that you can lock as soon as you get into contract, but if rates drop before closing, you can take advantage of the lower rate while also being assured that your rates won’t go up. You can’t get a worse deal with a reprice option, but you can get a better one.
Price v. Interest: How much does it really cost?
The rule of thumb is that if purchase prices drop by 10% but rates increase by 1%, you will keep the same monthly house payment—so waiting around for prices to fall might be negated by higher interest rates. You have to balance price and interest to find the true long-term cost of a home, and right now, interest rates are low.
No matter the interest rate, this still hold true: it’s always important to find a home you like, with a payment you can afford, and a plan to stay there for at least 3–5 years.
The Seattle real estate market year-over-year is WAY less volatile than the current stock market. So if you lock in your rate during an uptick in rates, remember that you can always refinance when they drop—be cautious about paying points if you think you might refinance anytime soon.
Wells Fargo: What Kate can do
Wells Fargo is the very best for Jumbo loans (any loan over $511,000), including a 10% down jumbo loan. Wells Fargo offers a permanent rate discount of 0.125% for every $250,000 on deposit with them:
- $250,000 = 0.125%
- $500,000 = 0.25%
- $750,000 = 0.375%
- 1 million + = 0.5%
Wells Fargo also offers unlimited re-amortizations anytime you put $20,000 or more down (this is great if you plan to sell after buying, or if you get large bonuses and want to lower your monthly housing payment). Wells Fargo is making a point to focus and use their resources for purchase business. They can still close loans within thirty days and are not overwhelmed with refinance business.
We recommend talking with Kate. If she doesn’t have the best loan option for you, she will happily help you find a good fit.
Personal Financial Planning
Priority #1: Live within your means. Keep a family budget and pay attention to where your money goes. It’s not so much the income that matters, but the OUT-GO that really counts.
Priority #2: Have at least six months of living expenses in savings available. Home Equity Lines of Credit make fabulous emergency funds.
Priority #3: Protect your credit score as much as possible. Check in with Kate before missing a mortgage or credit card payment to find out your options if money gets tight.
Priority #4: Purchase term life insurance outside your employer-supplied policy. The minute you get a terminal illness, you lose your job and your company-sponsored policy. Ten-, fifteen- or twenty-year term policies are very affordable when you are fifty years old or younger