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CNN Saturday Morning News
Interview with Vera Gibbons
Aired November 09, 2002 - 07:44 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL COSTELLO, CNN ANCHOR: A few days ago, the Federal Reserve cut a key short-term interest rate by a half percentage point.
It's with a bigger reduction than most analysts had expected, and was an effort to prod the sluggish economy. But what does it mean for the average consumer?
Here to explain is Vera Gibbons of "SmartMoney" magazine. Good morning.
VERA GIBBONS, "SMARTMONEY MAGAZINE": Hi. How are you?
COSTELLO: I'm fine. So, OK, in a nutshell, what does it mean for the average consumer?
GIBBONS: Well, it's certainly good for borrowers; it should cut payments on your car loans, carmakers will likely extend zero percent financing deals. Even to those with less than perfect credit.
It should also cut your payments on your personal loans, on your home equity lines of credit which move in step with the prime rate, and lower rates could also eventually push stock prices higher because as more and more people watch their fixed income investments, loose money on those, with a yield payment of one and two percent, they may be more interested in the stock market.
COSTELLO: Yes, but that's under the old logic. Nothing makes sense in this stock market these days.
GIBBONS: Oh, no.
COSTELLO: Absolutely nothing. So should you run right out and re-finance your mortgage right now, or should you wait a little bit?
GIBBONS: Well, really, the rates on the 30-year fixed mortgage, which a lot of us have, really have nothing to do with the fed lowering rates. They tend to track the movement of the ten-year Treasury note, not short-term rates.
I think a lot of people are under the impression then when the Fed lowers rates that automatically translates into lower mortgage rates, but that's not it. In fact, mortgage rates could actually go up if more investors move out of the bond market and into stocks. Similarly, mortgage rates could go down if investors think of this as a bad thing, if they think that it signifies, for example, that the economy is in worse shape than they imagined, then they're going to move out of the stock market and into bonds and that could ultimately push those mortgage rates right down.
Now the last week or so, the rates have edged up a little bit, but they're still under six percent, so they're still pretty good.
COSTELLO: So how do you know if it's worth it to go ahead and re-finance?
GIBBONS: Well there are actually calculators on the web that can help you with that. If you go to our site, for example, smartmoney.com, there are links to that site that can help you figure out whether or not it's worth it. It's a costly procedure but the rates are still pretty good, so.
COSTELLO: Hey, well, here's an idea that a lot of people have. Why not take out a home equity loan since the interest rates are low and then pay off your car?
GIBBONS: Well there you go. Another thing you can do, too, is you can re-finance your auto loan. The rates on that are dipping way below six percent so if you initially bought a car a couple of years ago when you had a higher rate and your credit rating is better today, you could take advantage of that, as well.
COSTELLO: How do you avoid being ripped off in the refinancing game?
GIBBONS: Well, you know, if they start dangling ridiculously lower rates in front of unsuspecting consumers eyes, that's a bad sign in and of itself but -- and there's a lot of that going on so you have to be on the lookout for that.
COSTELLO: Yes, and -- you know -- it's easy to talk if you make above $70,000 a year about re-financing, but if you make below that, it's a difficult proposition because sometimes it costs a lot because you have to pay the closing costs and things like that.
GIBBONS: Right, the costs are significant. That's why you do want to go to the calculators and make sure it does make sense because it can easily cost, you know, several thousand dollars. So first thing you want to do is to of course start at your bank, see what kind of rates they've got and you want to compare their rates with the rates you see on bankrate.com just to see whether or not your getting a good deal. In many cases, it does make sense but in some cases it's not for everyone, certainly.
COSTELLO: Well, let's get to the nitty-gritty. If you're only going to stay in your home for let's say two or three years is it worth it to refinance?
GIBBONS: Probably not. I think if you're going to stay in your home for a significantly long time it may be worth it. You know, again, I would suggestion going to smartmoney.com to check it out.
COSTELLO: OK, let's talk about buying a home, because it seems to be a buyers market now in many cities across America. You know, homes aren't selling like hot cakes any more unfortunately. GIBBONS: Well, yes, I know the column on these home values have gotten completely out of control. We actually just did a piece on this and we looked at a hundred of the nation's top markets and home values are -- you know -- they're -- home values are overvalued in most major markets so and significantly over valued particularly here in New York, for example.
Over valued by 46 percent. Also overvalued homes in San Francisco by 17 percent. Seattle by 19 percent. It's significantly overvalued. If you're looking to buy a home, you're probably going to pay too much.
COSTELLO: Well, yes, if you drive a hard bargain, though, you might be.
GIBBONS: Yes.
COSTELLO: But, you know, a lot of people don't like to be tough in negotiations.
GIBBONS: I know. That's true. But I -- if you're living in a market where -- well -- let's just say you have to take a look at where the local economy is to see whether or not you're actually going to make money on a home because if prices have gone up significantly and are now starting to fall and the job market is deteriorating then that's a bad sign in and of itself.
COSTELLO: OK, Vera Gibbons, thank you very much from "SmartMoney" magazine helping us out with our finances this morning, we appreciate it.
GIBBONS: Sure.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Aired November 9, 2002 - 07:44 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL COSTELLO, CNN ANCHOR: A few days ago, the Federal Reserve cut a key short-term interest rate by a half percentage point.
It's with a bigger reduction than most analysts had expected, and was an effort to prod the sluggish economy. But what does it mean for the average consumer?
Here to explain is Vera Gibbons of "SmartMoney" magazine. Good morning.
VERA GIBBONS, "SMARTMONEY MAGAZINE": Hi. How are you?
COSTELLO: I'm fine. So, OK, in a nutshell, what does it mean for the average consumer?
GIBBONS: Well, it's certainly good for borrowers; it should cut payments on your car loans, carmakers will likely extend zero percent financing deals. Even to those with less than perfect credit.
It should also cut your payments on your personal loans, on your home equity lines of credit which move in step with the prime rate, and lower rates could also eventually push stock prices higher because as more and more people watch their fixed income investments, loose money on those, with a yield payment of one and two percent, they may be more interested in the stock market.
COSTELLO: Yes, but that's under the old logic. Nothing makes sense in this stock market these days.
GIBBONS: Oh, no.
COSTELLO: Absolutely nothing. So should you run right out and re-finance your mortgage right now, or should you wait a little bit?
GIBBONS: Well, really, the rates on the 30-year fixed mortgage, which a lot of us have, really have nothing to do with the fed lowering rates. They tend to track the movement of the ten-year Treasury note, not short-term rates.
I think a lot of people are under the impression then when the Fed lowers rates that automatically translates into lower mortgage rates, but that's not it. In fact, mortgage rates could actually go up if more investors move out of the bond market and into stocks. Similarly, mortgage rates could go down if investors think of this as a bad thing, if they think that it signifies, for example, that the economy is in worse shape than they imagined, then they're going to move out of the stock market and into bonds and that could ultimately push those mortgage rates right down.
Now the last week or so, the rates have edged up a little bit, but they're still under six percent, so they're still pretty good.
COSTELLO: So how do you know if it's worth it to go ahead and re-finance?
GIBBONS: Well there are actually calculators on the web that can help you with that. If you go to our site, for example, smartmoney.com, there are links to that site that can help you figure out whether or not it's worth it. It's a costly procedure but the rates are still pretty good, so.
COSTELLO: Hey, well, here's an idea that a lot of people have. Why not take out a home equity loan since the interest rates are low and then pay off your car?
GIBBONS: Well there you go. Another thing you can do, too, is you can re-finance your auto loan. The rates on that are dipping way below six percent so if you initially bought a car a couple of years ago when you had a higher rate and your credit rating is better today, you could take advantage of that, as well.
COSTELLO: How do you avoid being ripped off in the refinancing game?
GIBBONS: Well, you know, if they start dangling ridiculously lower rates in front of unsuspecting consumers eyes, that's a bad sign in and of itself but -- and there's a lot of that going on so you have to be on the lookout for that.
COSTELLO: Yes, and -- you know -- it's easy to talk if you make above $70,000 a year about re-financing, but if you make below that, it's a difficult proposition because sometimes it costs a lot because you have to pay the closing costs and things like that.
GIBBONS: Right, the costs are significant. That's why you do want to go to the calculators and make sure it does make sense because it can easily cost, you know, several thousand dollars. So first thing you want to do is to of course start at your bank, see what kind of rates they've got and you want to compare their rates with the rates you see on bankrate.com just to see whether or not your getting a good deal. In many cases, it does make sense but in some cases it's not for everyone, certainly.
COSTELLO: Well, let's get to the nitty-gritty. If you're only going to stay in your home for let's say two or three years is it worth it to refinance?
GIBBONS: Probably not. I think if you're going to stay in your home for a significantly long time it may be worth it. You know, again, I would suggestion going to smartmoney.com to check it out.
COSTELLO: OK, let's talk about buying a home, because it seems to be a buyers market now in many cities across America. You know, homes aren't selling like hot cakes any more unfortunately. GIBBONS: Well, yes, I know the column on these home values have gotten completely out of control. We actually just did a piece on this and we looked at a hundred of the nation's top markets and home values are -- you know -- they're -- home values are overvalued in most major markets so and significantly over valued particularly here in New York, for example.
Over valued by 46 percent. Also overvalued homes in San Francisco by 17 percent. Seattle by 19 percent. It's significantly overvalued. If you're looking to buy a home, you're probably going to pay too much.
COSTELLO: Well, yes, if you drive a hard bargain, though, you might be.
GIBBONS: Yes.
COSTELLO: But, you know, a lot of people don't like to be tough in negotiations.
GIBBONS: I know. That's true. But I -- if you're living in a market where -- well -- let's just say you have to take a look at where the local economy is to see whether or not you're actually going to make money on a home because if prices have gone up significantly and are now starting to fall and the job market is deteriorating then that's a bad sign in and of itself.
COSTELLO: OK, Vera Gibbons, thank you very much from "SmartMoney" magazine helping us out with our finances this morning, we appreciate it.
GIBBONS: Sure.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
