To buy or re-fi: Is now the time?
by Kathryn Tuggle, Personal Finance Editor
Dimespring | November 21, 2012
Interest rates may be at record lows, but that doesn’t mean you should pull the trigger on a major purchase before you’re ready. Whether you’re looking to buy a home or refinance the one you’ve got, it’s always best to put pen to paper and consult with experts before making a change. With that said, it’s unclear how long rates will remain below 4 percent, and nobody wants to miss the boat. We checked in with interest rate and mortgage experts to find out if now is really the best time to make a move.
Will interest rates ever be this low again?
“It’s certainly a generational low — no one has ever seen this before,” says Tyler Vernon, president and CIO of Biltmore Capital Advisors in Princeton, NJ. “There’s a camp who thinks we’ll enter a Japanese deflationary cycle, in which case we could see much lower rates. In our opinion that is not a very likely outcome, especially during a time when our Fed Chairman Bernanke has studied the Great Depression and seems to rely heavily on monetary policy, primarily the printing of more dollars.”
Vernon says that he does not think rates will go much lower, and that it’s likely that this will be the last time “our generation” sees these kind of rates.
It’s likely that interest rates will stay low until the economy is back in full swing and unemployment is down to at least 5 percent, says Joe Gross, marketing expert and president of Joe Gross Marketing in New York.
In the near future, interest rates will remain low due to the Fed’s commitment to purchase bonds, says Robert Luna, CEO of SureVest Capital Management in Phoenix, Ariz.
“Longer term I fear that this game can only last so long and will eventually lead to much higher rates,” Luna says. “I am much more concerned with rates rising looking three to five years out than I am in the shorter term. “
Should you move now on that purchase you’ve been debating?
“If you are referring to a home, yes,” says Vernon. “In our view, it’s quite clear that the housing market is coming back on a national basis. By instituting Operation Twist, the Fed has been intentionally buying long term bonds in attempts to drive down mortgage rates which are tied to bond prices. They have succeeded!”
Vernon says the historical lows we are seeing on mortgage rates is helping the housing market by making loans cheaper — leading to a win-win for both first time and existing home buyers.
“Consumers should certainly move now if they are considering a big-ticket purchase because interest rates are about as low as they’re going to get,” says Odysseas Papadimitriou, CEO and founder of Evolution Finance and CardHub.com. “The credit card data we monitor on an ongoing basis shows that 0 percent offers have plateaued as of late, with the average introductory period lasting right around 10 months. Failing to pull the trigger now could therefore cost you a lot of money down the road when rates rise and finance charges become a bigger factor.”
If you’re considering a major life-changing purchase like a house or a car, etc. should low interest rates even influence such a significant purchase in your life?
“Yes, low rates should certainly influence your timing,” says Vernon. “Make sure, however, that you can afford this kind of property and don’t just buy it because rates are low. If the timing is right and you find a home or car you like, assuming you need it, it certainly is the time to buy.”
Vernon cautions that if it’s a car you want to buy, you may have to negotiate a bit as companies can make a lot of money by charging you a higher rate.
Luna says he feels this is the “ideal environment” in which to be borrowing, as “outside of rising rates, all of the monetary stimulus we have witnessed will lead to much higher inflation.”
Overall, it’s okay to let lower rates influence your buying and borrowing decisions because at the end of the day, it’s your monthly payment that dictates whether or not you can live comfortably, says Gross.
“The lower the rate the lower the payment and that means you can afford things that you couldn’t afford before or otherwise,” Gross says.
How do you know when you should make your move and when you should sit on the sidelines?
“You need to have a need,” says Vernon. “Don’t just buy to buy.”