- The Washington Times - Thursday, October 7, 2004

Q: We missed the boat last spring and never refinanced our 6.50 percent,

$290,000 mortgage. We are now paying much better attention and understand that rates have dropped.

Our question is this: Should we lock in now or should we wait in case the rates fall further? I have heard that rates will be even lower by the end of the year.

A: I often refer to a saying that illustrates my opinion about interest rate speculation: “Pigs get fat and hogs get slaughtered.”

The fact is that almost every economist and pseudo-economist has an opinion regarding the direction of interest rates.

The problem is that there’s rarely any agreement. This means a lot of so-called economic gurus are going to be wrong.

Rates may be lower by the end of the year. But maybe not.

So far, no one has been able to convince me that market-driven interest rates can be accurately predicted over the short term.

Two weeks ago, the Federal Reserve made the widely expected decision to raise short-term rates by one-quarter percent. Low and behold, long-term mortgage rates dropped on the news, surprising a lot of economists.

After the Fed meeting, I poked around the Internet looking for some clues to the future. As expected, opinions by economists and bankers varied greatly. One fellow cited a “bubble” in mortgage rates, predicting a 50 percent increase in mortgage rates next year.

Another analyst compared the U.S. economy to that of the situation in Japan several years ago. The Japanese economy was at a virtual standstill and interest rates were near zero percent.

OK, it’s pretty evident that there’s no consensus on the direction of interest rates.

So I’ll answer your question. If the experts can’t predict the rates accurately, I doubt if you can. I certainly can’t.

So my advice is to grab a lower rate and get out of your 6.50 percent loan. I see that there are no-closing-cost programs available in the high 5-percent range.

Speaking of no closing costs, I have one more piece of advice: Don’t get suckered into a lower note rate that forces you to roll thousands of dollars in points and closing costs into your loan.

It’s much better to take a higher interest rate with little or no closing costs. That way, in case interest rates fall again, you can refinance again.

Henry Savage is president of PMC Mortgage in Alexandria. Contact him by e-mail (henrysavage@pmcmortgage.com).

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