Interest Rates to Remain Low Until 2014?
Posted on 30. Jan, 2012 by Scott Schang in Interest Rate Alerts
January 25, 2012 (Reuters) – Federal Reserve Chairman Ben Bernanke said on Wednesday the central bank was ready to offer the economy additional stimulus after it announced it would likely keep interest rates near zero until at least late 2014.
I’m not an economist so I can’t really offer an educated opinion about this statement, and quite honestly I don’t trust most of the information that the Government feeds the public. That said, there has to come a point when this whole housing “crisis” begins to return to some form of normalcy.
Although the interest rates that Bernanke is referring to here are not necessarily mortgage interest rates, there is a direct relationship between this announcement and the federal reserves efforts to drive down the cost of mortgage money.
The fed has come to the rescue in the past couple of years by pushing mortgage interest rates down to almost unheard of, historic lows – especially in the past few weeks. The theory is that if mortgage interest rates are kept low, this will stimulate real estate buying and selling and (fingers crossed) we will spend our way out of this housing crisis.
Let’s assume for a moment that interest rates do remain around where they are now for the next couple of years, what does that mean exactly? Here are a couple of thoughts.
Homeowners – This is great news for owners that have already committed to weather the equity storm and plan to stay in their home, regardless of what the home is worth.
Programs like HARP 2.0 and the proposed refinance program for homeowners whose loans are not owned by Fannie Mae or Freddie Mac should be in a position to save some serious money by taking advantage of lower interest rates.
Homeowners with FHA, VA and USDA loans will continue to have incredible opportunities to reduce rates and payments through streamline refinance programs. Even if you purchased or refinanced a year ago, interest rates have dropped so much since then that it might be worth a serious look.
Home Buyers – I have good news and bad news for home buyers, but really, it’s all good news. Now that we have what I think is a realistic timeline for low interest rates, I anticipate that the competition on homes for sale will only increase as we move closer to the projected rate increases in late 2013, early 2014.
Home buyers in 2012 will probably be in the best position to take advantage of both worlds, reduced competition and lowest rates.
Buying Again After BK, Foreclosure, Short Sale or Deed in Lieu – Folks that lost a home in the past couple of years will be in a great position to own again, landing on their feet in a MUCH better position than they were in with a previous upside down home.
If you were one of the many homeowners that got caught up in the housing crisis of the past few years, you may be eligible to buy again in:
- 1 year after discharge of Chapter 13
- 2 years after short sale or deed in lieu of foreclosure with 20% down payment and minimum 680 credit score
- 2 years if eligible for VA housing benefit
- 2 years after discharge of Chapter 7 bankruptcy
- 3 years if buying again using FHA financing
If you have questions about your specific situation, feel free to leave a public comment below, live chat, or contact me privately – my cell phone and email are listed in the author box below.
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3 Responses to “Interest Rates to Remain Low Until 2014?”
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Hello Scott,
Question about this article, I have been told numerous times that when interest rates go up then prices go down so shouldn’t the best time to buy be in 2013/2014 when the rates go up so the prices go down? Have I been told incorrect info? Thanks for your time.
Hi Scott, Thank you for sharing your knowledge and your passion for wanting to help others. Your articles have helped me with my personal home buying process. My husband and I purchased our very first home last year with a conventional loan (4.375% interest rate) instead of a FHA loan to avoid paying the up front PMI premium. We have only been in our home 5 months and I have been toying with the idea of refinancing. I would appreciate any feedback. Thank you
Hi Deborah, thank you so much for the kind words, it really means a lot to me
I do get this question often, “should I refinance” – My answer is always….it depends. Not that helpful right? Let me explain.
First, have your goals changed? Do you plan to live in the home longer, or a shorter period of time that previously?
Second, what would be the primary reason for refinancing? Pay off home sooner or simply try to reduce your monthly payments?
If it’s only a matter of reducing the interest rate – I think it just comes down to simple math. There will be costs to refinancing – title, escrow, lender fees – it’s not expensive, but it’s still something to consider.
At 4.375% there is an opportunity for you to lower that. If your goal is to stay in the home for longer than 10 years, I would also recommend buying the interest rate down as far as it makes sense to do.
I would definitely take a look at it. It will not cost anything to run the numbers and at least then you’re making informed decisions based on real numbers.
As you know, we are a direct lender in California. If you would like us to run the numbers and show you a couple of different options, shoot me an email with the best time and number to reach you and let’s just see what it looks like – there’s really no down side to trying
I hope this is helpful.