Interest Rates: Up From Here on Out? Should I Lock in Today?

[Beetwasher]

I'm buying a new home and I'm wondering if I should lock in right now? Any advice?

[MidwestTransplant]

1. YES!

[BlueEyedSon]

2. I think it's extremely unlikely you will be able to do better anytime soon

there is only downside, no upside to waiting.

My 2c.

[Warren Stuart]

3. Watch the unemployment #

If it goes down, expect interest rates to go up.

Greenspan has been making noises about raising rates, I'm surprised it hasn't happened already.

[BOSSHOG]

4. Its a roll of the dice but

its hard to imagine getting a lower rate in the near term future.

[eileen from OH]

5. Omigosh YES!

Don't be tempted by the slightly lower variable interest rates. Krugman warned months ago (and again just recently) that rates are going to go up. I remember the inflation years when they got as high as 14%.

Also, get your mortgage for as long a period as they will let you. Yes, when you sit down and figure out the interest, it'll be higher than the principal. But unless you plan on staying in that house forever and only paying the exact payment, it really doesn't matter. Get as low a monthly payment as possible and then always pay more than you need to and apply it to the principal. That way, if things are tight, you don't have a high payment. And if you have a good month, you can pay off more. We ALWAYS pay at least $50 more than the payment. It's amazing how that adds up over 15-20 years.

Best of luck to you - being a homeowner is great (also a lot of work!)

eileen from OH

[ramapo]

6. Hope you did it

Take Eileen's advice if you haven't yet. Lock in a fixed rate. Sure an adjustable is less but it WILL go up. An adjustable makes sense when rates are high.

Take a 30-year term for the lower payment. Then if/when you can afford it, make the additional payment against principle. Remember that each dollar towards priniciple reduces your outlay for interest. Take advantage of it.

Good luck.

[rapier]

7. notes

I'm not sure of the time frame. You've made a deal and need to get the mortgage this week, or you are just in the market? Of course if your just shopping I don't think you can lock in now.

Any decision over the short term is just a crap shoot. We have had quite a pop in rates the last month so a short term fall may be in order for a few days or weeks. If you can lock in now make your decision and live with it. either lock now or wait and see if there is a downtick for a few days and then lock in. The idea being to lock in on a day when rates are falling so you can feel better.

Is this pop just temporary. Nobody knows but my opinion is that this is the start of a secular trend to higher rates which will last years. Rates have been falling for 22 years. No trend lasts forever. IF this is the turn then todays rates will look beautiful in a few years. (Those higher rates however bode ill for continued residential real estate appreciation)

If your making a decision to buy strictly on rates then there is little sense in waiting, as I see it. If rates stabilize or fall, an unlikely scenario in my opinion, then home prices will continue to inflate. What you save on interest will be negated somewhat by that price inflation. If rates contiue to rise then your just stuck with a higher rate. Any end to home inflation will lag the turn in rates. I wouldn't expect a top in RE prices, if rates do continue upward, for 6 months or more. If prices drop later, well I think so, but I'm way off the conventional wisdom.

Any talk like the above about Greenspan and employment is almost irelevant. The Fed does not control long term interest rates which set mortgage rates. They can try to jawbone the rates thru endless blabbing but the cannot control those rates. If they did we would be at last springs all time lows right now..

[On the Road]

8. Unless You Know a Gnome

Yes -- lock it in. Downside risk is definitely greater than upside risk.