Interest Rates Are Down: Is It Time to Refinance or Shop For a Vacation Home?

By this point in the quarantine, you have probably spent more time inside your home than ever before. And you may have noticed shortcomings that never really bugged you before.

Sarah Rothschild certainly has.

“The windows are open and I hear the birds chirping — and I do not have a porch to go sit out on while I work,” the Chicago-area Realtor said. “Never before have I more wanted a country cottage nearby with a porch.”

With interest rates falling, some people are wondering if it’s time to shop for a vacation home to escape to. Others are daydreaming of remodeling or expanding the rooms whose problems have suddenly become so apparent, with the help of a cash-out refinance. Or maybe you just want to lock in a lower rate to reduce your monthly mortgage payment.

Is it even possible to make financial moves like this during the COVID crisis?

The answer is yes, according to experts; it’s all possible, if you have the patience to wait through extra delays.

“The agents, attorneys, title companies and county clerk offices are still able to get the job done. We are seeing closings happen each week countrywide,” Rothschild said.

Whether now is the exact right time to make a move is another question. Let’s look at the refinancing and vacation home shopping individually.

interest rates falling covid-19
Photo courtesy of Jason Briscoe / Unsplash

Is Now the Time for a Refi?

Mortgage rates had already been historically low before the COVID recession hit; we started the year with the average 30-year mortgage at just 3.5 percent. But once the COVID recession started, rates slipped even lower. They’ve since bounced a bit, probably because of high demand for refinances, but they could sink again, and farther, once banks process the initial demand.

But in order for refinancing to be right for you, rates don’t necessarily have to be the lowest they will possibly go. They just have to be better than what you already have.

“If you have not refinanced in the last six to nine months, chances are you can lower your payments,” said Bruce Raabe, founder of Relevant Wealth Advisors.

And it’s not just about the interest rate. It’s always — but especially at this time of great uncertainty — important to make sure that any financial move you make, including a refinance, fits with your overall financial plan, and that you pick the right product for your situation, cautioned Kathy Roeser, managing director of the Roeser Barbanente Group at Morgan Stanley.

“It’s really imperative that people understand the risks of different types of mortgages. Understand if there’s a prepayment penalty, and if the interest rate is fixed or if it resets,” Roeser said.

Is This a Good Time to Shop for a Vacation Home?

If you ride enough lifts at any Lake Tahoe resort, eventually you will find yourself sitting next to The Guy Who Bought His Ski House for Practically Nothing. It was a foreclosure, of course, in the darkest days of the housing crisis, when everyone else was either broke or too scared to invest.

Although you kind of hate this guy, you also hope to be him, if real estate prices ever hit those lows again.

So far, we haven’t seen anything like the crash in housing prices that occurred during the Great Recession of the late aughts. In fact, a survey by the National Association of Realtors showed that most sellers haven’t reduced their listing prices so far. Instead, some sellers are pulling their listings and others have held off on listing properties for sale.

That doesn’t mean that the opportunities won’t arise this year at some point.

“It’s typical that all sorts of ‘toys’ — e.g., vacation homes, sports cars, airplanes, etc. — are marked down to fire sale prices during a financial crisis,” said Joseph Pagliari, professor of Real Estate at the University of Chicago Booth School of Business. “I’m just not sure we’re there yet. It will depend on how much longer these quarantine measures remain in effect, the impact of various stimulus packages and the nature of the economic recovery (e.g., V-shaped, U-shaped, hockey stick, etc.).”

But there is certainly no guarantee that any buying opportunities that come up will rival those during and after the Great Recession.

“Steep price cuts in 2008 were preceded not only by job losses but also by massive overbuilding and over leverage in the housing market. We currently have steep job losses, but we estimate that we were about 3.8 million homes short to start 2020, so the housing market was in a very different place,” said Danielle Hale, Chief Economist at Realtor.com.

With social distancing restrictions continuing, it’s certainly not an ideal time to do the things that are normally part of house shopping: riding around in the backseat of your agent’s car, touring properties, sitting across the table from the sellers at a closing. Those who are going ahead with real estate transactions during stay-at-home orders have found challenges such as appraisers not working or local offices being closed. It’s no surprise that home sales plunged once COVID-19 hit, with March’s pending sales 20 percent below February’s.

Yet, if now is the right time for you, it is possible to take advantage of lower rates and low competition from other buyers, and close on that second home, Rothschild said.

“Luckily, (the real estate industry) has been working paperless more and more each year and had the tools in place to work that way when COVID-19 hit,” she said. “There isn’t a realtor around who cannot use their phone or tablet to give virtual tours.” Rothschild’s website features images of an empty home she had “virtually staged,” with images of furniture and rugs seamlessly superimposed over photos of empty rooms.

Whether you are considering refinancing your primary residence or acquiring a second one, the most important part of the decision is how it fits into your personal financial circumstances, experts agree. Timing isn’t just about market conditions, it’s also about your personal conditions.

“In regards to timing, it is dependent on where you stand in regards to your financial plan and objectives,” Roeser said. More than ever, the basics matter, such as having an emergency fund in place and adequate cash flow to cover expenses.

Whether now is the exact time to make the move or not, one thing is certain: Browsing vacation home listings is great entertainment while movie theaters, golf courses and concerts are all shut down. So whether it’s a dream or a plan, open up your web browser and check out that beach frontage.

“If you’re interested in purchasing a second home, there are good reasons to start now. The process of finding the right home can sometimes take longer than expected,” said Hale, who recommends taking advantage of the virtual tours and other online information agents are making available. “That way, you can make better decisions about what properties you go visit in person and get a lot of the initial legwork out of the way before venturing out.”


How to Help:

While you may be evaluating your investment and refinancing opportunities, there are many facing unspeakable hardships right now. Find a list of nonprofits that need your support on our Better List.


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Carrie Kirby spends a lot of time asking people about something they think about but rarely talk about: money. Her work on personal finance, business and technology has appeared in San Francisco Magazine, The San Francisco Chronicle, Wise Bread and more publications. She lives on an island (Alameda) with her husband and three kids, and blogs about family travel and mileage rewards at The Miles Mom.