To: Crimson Ghost who wrote (4021 ) 4/9/2004 1:04:35 PM From: mishedlo Read Replies (5) | Respond to Well What Have We Here?One last point. Since a home can be an attractive investment in a reflationary environment and since homes are generally financed via a mortgage, a brief comment is in order. First of all, no comment on housing prices in general despite their bubbly appearance. Like politics, most home prices are local so you should know more than I do. If you choose to buy or refinance a home however, I have perhaps a controversial recommendation: avoid the 30-year fixed rate mortgage. Expecting higher interest rates in future years, it seems strange to be arguing for anything other than locking up low rates now. I take the opposite view by recognizing that a 15-year mortgage, which is longer than most homeowner’s horizons anyway, comes with yields 50 basis points or lower than the 30-year alternative. In addition, even shorter term mortgages are so much lower in yield, that they effectively reduce the risk of higher future rates. The way for homeowners to borrow close to 1% is to finance their home via an adjustable rate mortgage geared to the short rate. If you can live with the volatility, you’ll have more in the bank over the long term. pimco.com
