| NEW YORK
NEW YORK Jan 31 When the housing bubble burst,
a damage-control mentality replaced decades of conventional real
With the housing market now rebounding, there is still
uncertainty. The old rules - such as getting a fixed-rate
mortgage and refinancing when you can - don't apply. But the
post-bust rules don't work either.
"There's a new, new emerging wisdom," says Erin Lantz,
director of the Zillow Mortgage Marketplace for the Zillow.com
real estate site.
Here are some of the new twists real estate experts see for
Old: Interest rates have to go up, so you better act quickly
to make a purchase.
New: Interest rates are not going to zoom in any particular
direction, so take your time.
"The one thing we can say with certainty is that rates will
go up and down," says Keith Gumbinger, vice president at
HSH.com, a mortgage information website. When they will rise and
fall, and by how much, is an open question.
Gumbinger says some people are rushing into home purchases
or refinancing because they've panicked, applying the
conventional wisdom that interest rates will climb.
But Gumbinger says before you buy, focus on the long-term
value of the property to determine whether it's worth getting
into a 30-year mortgage.
Even though nearly 90 percent of recent mortgages have been
30-year fixed mortgages, people should consider shorter-term
loans - if they can afford the payments - and even adjustable
rates, adds Zillow's Lantz. "The reality is that most people
don't stay in a house for 30 years, so they're taking on more
debt than they need," he says.
Old: Refinance now!
New: Do the math
"If you hear somebody saying 'You have to refinance,' that
might not be true," says Ilyce Glink, publisher of
thinkglink.com, a real estate information site.
Glink suggests that you ask these four questions to evaluate
your options: Will this lower my interest rate? Will it lower my
loan payment? Will it result in a shorter loan term? Can I
manage the closing costs?
You can do the math with online calculators.
If the answer is "Yes" to all four, then it's a home run. If
you meet only three, then you're probably OK. Less than that,
you need to rethink your plan, according to Glink.
Old: A house is a goldmine
New: Rent if you're not going to stay put
There are dozens of calculators on the web that will help
you figure out whether you should rent or buy, but that equation
has still gotten many people stuck with mortgages that are
larger than their houses are worth over the last few years.
For one thing, most calculators rely on the assumption that
the average American stays in a home for seven years. But that
may be wrong now, says Jed Kolko, chief economist of Trulia.com.
Based on the latest census data, his team calculates this
average is now at eight-and-a-half years, though it varies by
demographic. Because of employment conditions, Kolko advises
anyone younger than 40 to consider their career stability before
locking into a home purchase.
"The shaky job market for young people means they can't
count on staying put for many years," he says.
Glink says the time frame should really be more like 10
years. If you think you're going to stay put at least that long,
then buying is a good idea, because you'll at least break even
and maybe even profit, depending on your situation.
"Could you make more in the stock market? Maybe. "But you
don't live in the backyard of your IBM stock certificate," Glink
In a long-term situation, buying a house has intangible
benefits of putting down roots in a community and being able to
do as you wish with the property.
Old: Pre-pay your mortgage to get rid of debt sooner
New: Try a shorter mortgage
It was long a bedrock of personal finance advice that people
should try to pay off their mortgages early to save thousands of
dollars in interest payments - typically by adding in a 13th
payment in a calendar year or doubling the principal payment.
But when mortgage rates dropped, this stopped making sense for
people who had debt with higher interest rates.
"There are qualifications to this that weren't there 10
years ago," says Glink.
You want to pay highest-rate debt first, says Glink. Weigh
the mortgage interest tax deduction, if you claim it, but pay
off non-deductible debt first.
If you are fortunate to have only a mortgage, along with
money for extra payments, try to shorten the length of your
mortgage by refinancing to less than 30 years, says Lantz.