Should You Apply for a Mortgage during the Pandemic?

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Life as we knew it became a distant reality with the onslaught of the coronavirus pandemic. Over the last few months, news outlets, government agencies, and businesses are focused on alleviating the health, social, and economic impacts brought about by the deadly virus.

As industries struggle with swiftly following consumers’ needs, stakeholders are laying down measures to keep these industries afloat.

How is the mortgage industry faring?

The unprecedented threats to human life and the global economy took over the world in the last few months. Uncertainties led to unemployment, businesses closing down temporarily and permanently, and people unable to go out of their houses.

The mortgage industry is no stranger to these negative effects presented by the pandemic. Professionals in home loans are coming up with strategies to keep up with the new market tide. Interest rate cuts, the inability to operate normally, and the shrinking livable property choices are the ones leading the tide.

The industry is currently coping with the Federal Reserve’s interest rate cuts that started in early March and kept going until summer. This was done to breathe life into the economy by encouraging more monetary movement from both mortgage providers and clients. Doing so protected the American economy and its financial markets from going on a downward spiral that can prove lethal to everyone involved.

The Fed’s rate cuts are said to remain until the country’s economy is perceived as revived post-pandemic.

The interest rate reductions prompted current mortgage clients to apply for refinancing, a way for them to request modification on current term conditions regarding interest rate, payment schedule, and other terms stipulated in the mortgage contract between the lender and the borrower.

Another occurrence is the flood of mortgage applications from potential home buyers taking advantage of the near-zero interest rates. However, with the rise of unemployment rates in the country due to most establishments not operating normally, lenders are cutting transaction costs to aid the home buyers.

The stay-at-home mandates and social distancing rules also gave rise to the mortgage industry stakeholders to invest in technology adaption. Virtual home tours and closings are popular nowadays. The market for homes, however, is closing due to sellers pulling their properties from the market. Simply put, houses available for purchase are fewer and currently more expensive than before the pandemic impacts came about.

Mortgage contract

Is now a good time?

Applying for a mortgage in a time of near-zero interest is an excellent idea if you really want to take advantage of the low rates. However, the type of mortgage and the cost of the property should weigh heavily in your decision-making. Here are the questions you should ask yourself:

  • Can you afford the current listings available to you?

  • What type of mortgage are you planning to get?

Since the market for livable property currently has a supply shortage because sellers decide to keep their properties off the market, on-the-market listings are going up. You should evaluate your finances by applying for a mortgage pre-approval. Doing so will provide you and lenders an overview of your finances, income, debts, and investments relative to your desired livable property’s value. The lender you apply with will also give you an estimated loan amount to give you an idea of how much the contract would cost.

Are you planning to opt for a fixed-rate mortgage or an adjustable-rate one? A fixed-rate mortgage will have your mortgage earning the same interest rate stipulated in the loan agreement throughout its duration. However, an adjustable-rate mortgage will have a few years with the same interest rate, and the remaining years will have the interest rates changing depending on indexes and margins the agreement is based on. All of that will be written in the mortgage contract for your understanding.

Applying for a mortgage at this time might seem like a good idea to the naked eye, but then again, housing prices are soaring due to the lack of supply, which can be a problem for regular income individuals. Assessing the current market climate is the best way to know when the ideal time to buy a house is.

Do thorough research and identify significant market behavior that will help you decide practically. Consult experts in the industry to gain a better insight into the ins and outs of the process. As always, always consider if this potentially big financial move is worth the effort in the long run.

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