October 30, 2014
Reiss on Refinancing
MainStreet quoted me in Fed’s End to Quantitative Easing Will Affect How You Invest and Buy a House. It reads in part,
The Federal Reserve’s decision to end its bond buying program after six years to help boost the economy is a sign that more recovery and growth will occur. So what does the typical American on Main Street need to know?
While the Fed did not indicate a timeline for when interest rates will rise, consumers should be prepared and “see the writing on the wall” since variable rates such as credit cards, adjustable rate mortgages and home equity loans will start to rise slowly and gradually, said Bankrate.com chief financial analyst Greg McBride, CFA.
“The low interest rates will come to an end,” he said. “Consumers should pay down debt while the rates are low rather than contend with it once rates move up.”
Mortgage rates will remain low but will fluctuate according to global risks, not because of any actions taken by the Fed, said Ernie Goss, a professor of economics at Creighton University in Omaha. Consumers should expect rates for short term rates such as auto loans to rise “ever so slightly” between now and July 2015, he said.
The good news about rising interest rates is that savers will begin earning more on their nest eggs, but the increase could be offset by a higher cost of borrowing and could discourage people from getting loans and spending, said Gail Cunningham, a spokesperson for the National Foundation for Credit Counseling, a Washington, D.C. non-profit organization.
“If mortgage rates rise, consumers with variable rate mortgages will see their monthly payments go up, putting a dent in the amount they have available for disposable spending,” she said.
Even if mortgage rates do increase, consumers need to consider the costs of refinancing before they embark on the process, said David Reiss, a law professor at the Brooklyn Law School in New York. Homeowners need to determine how long they plan to live in their home and if the cost of refinancing outweighs the lower monthly payments.
“If you are not sure that you will be there for a few years at least, the cost of refinancing may be more than the amount you save in decreased interest payments,” he said. “How many years will it take you to recoup that cost in reduced interest rate payments?”| Permalink