Interest Rates Declining Again: Time to Refinance?

In our May/June 2004 issue, page 10, in an article titled "Gentlemen: Start Locking In Your Interest Rates," we predicted rates would soon begin climbing. To that end, we urged you to lock in your rates (prime rate stood at 4%) to protect yourself. Well, our advice proved to be timely. In July of that year, the Fed began raising the federal funds rate (referred to as tightening the credit markets). The prime rate also began its rise, and by the summer of 2006 it was 8.25% -- more than double the rate of two years earlier.

Amazingly, rates are on their way back down again. The prime rate is 6% -- which is 2.25% lower than it was just last fall.

What does this have to do with you? I suggest that -- if you have outstanding debt at rates of 7% or above -- you consider refinancing with fixed-rate debt at the low current rate.

Could rates go down even more? Absolutely. These things are hard to predict, but given historical rates of the past 50 years, 6% is pretty darn low.

Do I think we run a risk of rates rising rapidly -- as in the summer of 2004? No. Not at this time. But these things are cyclical, and now's the time to begin thinking about locking in debt at lower rates. You know, I didn't think we'd get back here this soon, but thanks to the mortgage crisis, here we are again.