Time may be running out for low interest rates

Government shutdown agreement, new lending rules could cause interest rates to spike

Don’t be surprised if interest rates move sharply higher in early 2014. While homeowners have enjoyed record low interest rates for almost four years, a gathering storm of new regulations coupled with the threat of another government shutdown in February could put an end to this remarkable era of low mortgage rates.

Keep in mind that the recent Congressional deal to avoid the debt ceiling only postponed debt negotiations until February. If Congress and the President cannot come to an agreement by then, the nation faces the same government shutdown scenario that just concluded. Moreover, another government shutdown in February, or even the threat of one, would inject much more uncertainty into the credit markets and likely be much worse for the overall economy.

Compounding the uncertainty is the prospect of the Federal Reserve scaling back, or “tapering”, their program of purchasing mortgage-backed securities and U.S. Treasuries, also known as QE3. By itself, a decision by the Fed to taper QE3 purchases in 2014 could increase interest rates by as much as 2.00%.

The implications for homebuyers are quite clear—if you’re looking to purchase a new home, you’d better hurry. Homebuyers who get a lower interest rate can afford a home with a higher price tag because lower interest rates enable homebuyers to qualify for a higher mortgage amount. Although the real estate market typically quiets down over the holiday season, smart homebuyers would be wise to finalize their home purchase sooner rather than later and take advantage of low interest rates which could save them thousands of dollars compared to the higher interest rates waiting for them in the spring of 2014.

For those homeowners who would like to capitalize on the increased value of their home and refinance to take some cash out, there’s no time like the present. Many real estate markets experienced a bounce in 2013. Now would be the time to take some cash out to pay off high interest rate debt or make long-delayed home improvements, and secure a low interest rate in the process.

The most compelling reason to take advantage of today’s low interest rates, rather than waiting, is simple. It’s a “heads you win, tails you win” proposition. If the above analysis is correct, and interest rates increase in 2014, both homebuyers and homeowners stand to win. Conversely, in the unlikely event that interest rates decline, both groups can simply refinance to a lower interest rate. It’s a win-win scenario.

To learn how recent events could benefit you and your family, we encourage you to contact James B. Nutter & Company today.

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