Stop listening to the stock market gurus

Posted: Jun 12, 2006 12:01 AM

I get a large number of emails every day of the week at, including Saturday and Sunday, from interested real estate owners who would like various questions answered. A surprising number are from people who have incredibly low arms, 3% to 4% range, who are sure that both interest rates are going through the roof and property values are going to fall like the proverbial brick and want to lock into a higher fixed rate now! It absolutely doesn't make any sense at all.

Setting aside the two premises, which I believe hold no merit, why is paying a higher rate for a longer period of time protection? The only protection against higher rates in reality is to get rid of the mortgage. How? By paying it down and eventually paying it off. If you have a $350,000 mortgage at 3.375% and you have two years before it becomes a variable, your current payment is $1547 per month. At 6.375% on a 30 year fixed the payment is $2183 or $636 a month more. Instead of refinancing just pay $636 a month more and your principal will come down an additional $15,000+ over the next two years. If you can put more in each month it will lower the principal even further.

The premises above can be dismissed by the fact that the rates are still around 30 year lows and the federal reserve is very near, or has reached the end of the tightening cycle. The feds next moves, probably by the end of the year, will be to start lowering the interest rates to stimulate a sluggish economy. Prices in real estate fall when employment starts falling. We are not having an employment problem and the demand for California real estate is still extremely strong.

If you have something good right now, as a very low interest rate, hang onto it with both hands. Call us at Manhattan West 949-5553 and we will give you the facts that will keep you from doing something you will regret for years. You may also write me at and I will be happy to explain in great detail anything you would like to know about the mortgage industry and particularly your individual situation.