MAHONING VALLEY Consumers react to falling rates

Investors should stick with their plan, an adviser said.
YOUNGSTOWN -- Falling interest rates have homeowners rushing to save money by refinancing mortgages and savers looking for new ways to boost their income.
Rates for 30-year mortgages have fallen from about 7.75 percent a year ago to 6.50 percent today, while long-term certificates of deposit have fallen from about 7 percent to 4.5 percent.
Bob Steele, vice president of deposit services at Home Savings and Loan in Youngstown, said more investors are opening money market accounts because CD rates are low.
Rates for money market accounts now are about 4 percent, making them close to the rates of CDs. Previously, CDs had been about 2.5 percentage points higher than money market rates.
Money market accounts are different than CDs because they don't have a fixed term, they can be added to or withdrawn from and their interest rates fluctuate.
Steele said Home Savings' deposits have been increasing steadily and at least part of that increase probably can be attributed to people becoming wary of the stock market because of major declines since last year.
Steve Lewis, president of First Place Bank, said he's sure that fear of the stock market is a reason why all categories of deposits are up at the Warren-based bank.
Abandoning market: Bruce Beard of Beard Pension & amp; Financial Services in Boardman said many investors are rushing to do the opposite of the trend in 1999.
Then, people who had never invested in stocks before were cashing in their CDs to buy Internet-related stocks, which were booming at the time, he said.
Now, with the stock market down, some people are pulling out of the stock market and buying CDs because the income is guaranteed, he said.
Neither approach is right, he said.
"The big mistake people are making is trying to time the market," he said.
Despite lower stock prices and lower interest rates, he is advising clients to stick with the asset allocation that they decided on previously. CDs may be a part of that, depending on an investor's situation and risk tolerance, he said.
Stocks also remain an integral part of that allocation, even though the Dow Jones industrial average is down about 15 percent since April 2000.
Stock prices are low, taxes are coming down and companies are starting to make money, he said.
"There's not a whole lot of risk in the market right now," he said.
Beard said he is suggesting bank stocks to clients as long as the banks don't have a large number of bad loans from the struggling economy. He said National City is one stock that is attractive because it is paying a dividend of 4.25 percent.
It's a much different environment than when he entered the business 20 years ago. At that time, money market rates were 15 percent and tax-free bonds were paying 11 percent. Many people didn't think there was much point to taking the risk of being in the stock market then, he said.
Refinancing: As rates have fallen for CDs, however, they also have dropped for mortgage rates.
Steele and Lewis said the surge in refinancing of mortgages is continuing. First Place set a record for the number of mortgage applications filed in October.
Area banks and mortgage companies have been busy all year as people refinance mortgages to take advantage of rates that have been around 6 percent for 15-year mortgages and 6.5 percent for 30-year mortgages. Refinancing allows homeowners to cut their monthly payments or the number of years of their loan.

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