According to the Wall Street Journal, and just about every other news source, Federal Reserve officials downgraded their assessment of the U.S. economy’s performance on Wednesday June 22, 2011. The Fed (as they are known, you probably knew that, but, hey, I don’t want to assume), says the economy is continuing to recover at a “moderate” pace but (and this is the great Fed-speak line) “somewhat more slowly than previously thought.” What? Is the recovery moderate or is it slow? Moderate is you taking one serving of turkey at Thanksgiving, some sides and maybe going back for a little more of Aunt Cecilia’s sweet potatoes (she melts the marshmallows on top and they are so crispy and brown that you have to get more). Whereas, slow is you going to the buffet once and then waiting for dessert (lick that fork clean, there’s pie).
After the Fed statement, the stock market promptly sold off and finished in the red. That tells you two things: 1) Your 401k needs to cook a lot longer until you get to sample it and 2) You need to cut costs. One great way to cut costs (says the mortgage banker/photographer author of this blog) is to refinance your mortgage. Switching to a lower interest rate mortgage, even if there are costs (and there so rarely are when you work me), will save you money over the long run. The hope is that as your mortgage shrinks AND your 401k will grow and at some magic time the former will “poof” be gone and the latter will be “live in Hawaii” huge. Maybe, but let’s not get ahead of ourselves.
But, Dan, you are thinking, (wow, you think very loudly) how do I know if rates are the lowest they will go? Good question, that. The short answer is, you don’t know. Last year, the 30 year fixed spent much of the year at 4.5%. It spent a short period of time at 4.25%, and it spent part of the day on October 8th at 4%. Today, it ranges 4.375%-4.625% for most borrowers. We watch the bond market every day. Right now, the bond market is telling us we are at or near the lows we will reach, but that is just a bunch of profit hungry, risk averse traders taking positions. They aren’t you and they don’t know your situation.
A great low rate you take now will help you start to save now. If it turns out that in the fall rates are lower, you can always refinance again and save even more. The tough thing is finding the absolute bottom. Plenty indicates we are close, but we won’t know until rates have gone back up.