[jeffbee]

I don't get that argument. Refinancing exists. If you can swing it, buying at peak interest rates is a great idea. All of those Boomers who whine about 18% rates from 1981—rates which by the way persisted for only 2 months—got the deal of a lifetime.

[pc86]

I agree with the general thrust of your comment but why would buying at an 18% interest rate be "the deal of a lifetime" all else being equal?

[AnimalMuppet]

In addition to what jeffbee said, because when the rates go down, not only can you refinance, but also the value of the house goes up. (Because the demand side of the supply/demand curve is set by monthly payments, not by total value, and when interest rates go down, the same monthly payments can fund a higher face value loan.) So you get the lower payments and capital appreciation.

By the way, the same "increase of face value" is true of buying long bonds at peak interest rates.

Of course, the trick is knowing when the peak is. But if the Fed's actions have their intended effect, we may be somewhat close currently. (Note well: I am not an investment advisor! Follow at your own risk.)

[jeffbee]

You are very likely to get a lower rate after a year or two. Anyone who bought at that peak 1981 rate had refinanced to cut their payment by half within only 5 years. Even if they had refinanced after just 1 year, their payments were already 20% lower.

This analysis assumes that rates would decline from exceptional highs, which is implied by the phrase "exceptionally high".

A Boomer who bought a house with 10% down and a $56k loan on fixed 30-year terms at 18% in October 1981 was initially paying $844/mo but in 1982 they could have refinanced down to just $700/mo. By 1986 their home was worth a nominal $80k and their payment was potentially down to just $450/mo.