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Mortgage Q&A: Don’t wait for drop in mortgages

- - Thursday, December 20, 2012

Q. My fiance and I want to buy our first home in 2013. I think we should find a suitable home as soon as possible and make an offer. We have been prequalified and have targeted our price range.

My fiance believes we should wait until at least late summer because he thinks mortgage rates will fall, making the purchase cheaper.

All this talk by the Federal Reserve makes him think rates will fall further. I'm not sure this is true. What do you think?

A. One thing I have learned by spending my whole life in the mortgage business is that I don't predict the movement of interest rates, especially long-term fixed mortgages. However, the Federal Reserve Board of Governors, under Chairman Ben S. Bernanke, has made considerable efforts to make the Fed more transparent. Recently he announced the board would not increase rates if unemployment remained above 6.50 percent and inflation remained under 2.50 percent.

Announcing economic targets to be met before a change in monetary policy surprised many analysts. Previously, the Fed said it expected to hold rates steady until the middle of 2015. In his statement, Mr. Bernanke said the announcement will "give the markets more information about how we are going to respond going forward."

Analysts interpreted the message as a sign that the Fed is willing to keep short-term rates near zero indefinitely. Does this mean your fiance is right and you should wait to buy a house? I don't think so for several reasons.

First, I think the most important reason to buy a particular house is suitability. Buy something you love. Your home should be a means of enjoyable shelter, first and foremost. A personal residence certainly is a financial investment, but I don't think that should be the driving factor in choosing a home.

Second, the Fed controls short-term rates, not long-term rates, which include 30-year fixed-rate mortgages. Your fiance may very well be right -- mortgage rates could be lower in late 2013, but there are simply too many uncontrollable factors to make such a prediction certain.

Third, most indicators point to a recovering housing market. It's likely that prices are finally on the rise again. If this is the case, a higher price in late 2013 could offset any savings reaped by a lower mortgage rate.

My advice is to not overthink it. You have indicated that you are prequalified and you have established your price range. This is very important. Now go out, find your dream home and buy it.

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.