Your Finance: Home-loan twists for 2014

When the housing bubble burst, a damage-control mentality

When the housing bubble burst, a damage-control mentality replaced decades of conventional real estate wisdom. (Credit: iStock)

When the housing bubble burst, a damage-control mentality replaced decades of conventional real estate wisdom.

Even with the housing market now rebounding, the old rules -- such as getting a fixed-rate mortgage and refinancing when you can -- don't apply.

Here are some of the twists real estate experts see for 2014:

Old: Interest rates have to go up, so act quickly to buy.

New: Interest rates are not going to zoom in any particular direction, so take your time.

Some people are rushing into home purchases or refinancing because they've panicked, applying the conventional wisdom that interest rates will climb.

But 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 Erin Lantz, director of the Zillow Mortgage Marketplace for the Zillow.com real estate site. Most people don't stay in a house for 30 years, so they're taking on more debt than they need.

Old: Refinance now!

New: Do the math.

Ilyce Glink, publisher of thinkglink.com, a real estate information site, suggests that you ask these four questions to evaluate whether to refinance: 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 gold mine.

New: Rent if you're not going to stay put.

Most rent-or-buy calculators on the Web assume that the average American stays in a home for seven years. But based on the latest census data, Trulia.com calculates this average is now at eight and a half years, though it varies by demographic.

If you think you're going to stay put at least 10 years, then buying is a good idea, because you'll at least break even and maybe even profit.

Old: Prepay 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.

But when mortgage rates dropped, this stopped making sense for people who had debt with higher interest rates.

You want to pay highest-rate debt first, says Glink.