Is it time to refinance?
SayUncle mentioned that interest rates are so low, the money's almost free. I wouldn't go that far yet, but it does seem that now is the time to refinance your house if you need to do so. He has a poll up asking people if they are refinancing. I won't steal it but you can go over and take a look. So far, over a quarter of the voters say they are waiting. I think the time to refinance might be when it hits 4%. What do you think? Is it better to jump in now or wait and see if the rates drop?
posted by Helen at 12:11 PM
9 Comments:
I think waiting might be a good idea. Not because the rate might drop some more, but because there might be more large scale layoffs announced after Christmas.
Well, if you have a loan or a mortgage at a certain interest rate and you can refinance it at a lower interest rate, then yeah you should do it. It will save you money, assuming the fees incurred are not greater than the interest saved.
But then I'm not much for debt, and I don't believe in leverage. Naturally there are some purchases, like for example a home, that require you to service a debt. This is why I always counsel people that the best way to buy a home is with 20% down on a fixed-rate 15-year mortgage (no PMI, lowest interest rate).
If you bought your house that way, you wouldn't be in a situation in which you needed to refinance today. You would have had equity moving in, and I seriously doubt you could get a better interest rate. But hey if you can, go for it. I'm all for saving money.
The thing about real estate is this. You only lose money if you're forced to sell. Prices go up, prices go down, but over the long haul, it's one of the best investments there is. You will recover all or more of the money you invested when you decide to voluntarily sell. An older, well-maintained home in a nice neighborhood with good schools is one of the hottest commodities on the planet. You can always sell a house like that, no matter what the interest rate is. (Interest rates were 18% in the late 70s, and people still bought homes.)
I think this article is mostly about debt management, not real estate. You buy a house to live in it. The problem today is that far too many people bought houses on the anticipation of continual appreciation, or took out home equity loans based on that same assumption, and now they're underwater. That is, they owe more on their loan than their house is worth, which is what they could sell it for in the current market. But that would only hurt them if they were forced to sell. Otherwise, they should just ride the wave and wait until prices inevitably rise again.
If you can get a lower interest rate today, go for it. If you think you can wait for interest rates to go lower, that's a gamble. Interest rates could very well go up. In which case, you'll have missed the opportunity.
That said, I'm not about debt management. I'm about value investing. Money, invested in value, is as good as gold.
I considered refinancing but I currently have a 20 year at 5.25 with only 14 years left on it. I can not find a rate low enough to make it worth my while.
I'm waiting for two things: 1) Lower rates. My current mortgage is 5.125 for 15 years; 9 years left. 2) Tax implications. Getting past the half-way point on a mortgage and the amount of interest paid (and hence deducted) starts going way down.
I'm really torn between refinancing and owning the house. I'm thinking about what I'll do when it's paid off. If I'm going to "refinance" it anyway for tax purposes, I might as well do it sooner rather than later.
If rates drop into the 4.5 range, I will seriously consider pulling a lot of equity out and buying a second property. It's a very good time to be a buyer.
For now: Waiting.
Also something to consider - all this easy money is going to have repercussions. If it goes the way of the 1970s, 5% is going to be a real steal on a loan when rates hit 15%.
Even though my rate is a fairly high 7% because I got it during the brief upswing in '99, my mortgage (and thus payment) is already small enough that the payback periods for the closing costs on refinancing are pretty long. I'll probably give it another shot after the holidays.
Here is an excellent article on option ARMs and interest rates.
http://www.doctorhousingbubble.com/
Note that the first rule of real estate is not interests rates--it's price. A house is only worth what you can sell it for.
It seems that what the banks are doing is taking the money they are getting from the Fed and instead of using it refinance troubled assets they are offering it to their 'A' paper clients. Which kind of misses the point of the liquidity the Fed is offering in the first place.
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