Ask Bankrate: Questions about home values, best use for pension money and more

Ask Bankrate is a recurring feature where Bankrate’s experts answer your financial questions. Visit this page for more information on how to submit your question. Click on a question here to jump straight to it.

Questions:

• Are home values set to fall?
• Should I put pension money in an IRA or pay off car?
• Laid off and can’t access 401(k). What can I do?
• Should I refinance if I’m retiring in a few years?
• Should I get a VA loan or traditional mortgage?

Q1: Are home values set to fall?

With regard to homebuying: Aside from the low rates, is the market pricing expected to fall greatly due to the disruption in the economy? And when might we expect to see that drop in the market for a buyer to time lower purchase prices?

— George

Should we expect a smaller drop in property values and not a sizable drop, as real estate usually lags on the economic effect on it compared to the stock market?

— Danny Z.

Answered by Natalie Campisi, senior mortgage reporter: “Some experts think we’re overdue for a price correction and that the coronavirus is just speeding it along. A recent report by CoreLogic forecasts that within the next 12 months, 41 states will see a slight reduction in home pricing. However, inventory is still very tight, so once the economy recovers there will likely be demand for housing, which could push prices back up.

Property values are not expected to drop much; in some areas, they’re not expected to drop at all. In places that are considered overvalued and also where the pandemic has had a more significant impact on employment and spending (tourism, hospitality), like Las Vegas, prices are projected to fall by about 4-7 percent within the next 12 months, according to the CoreLogic report. Tight inventory has helped the housing market retain most of its value, unlike the Great Recession, where we had a surplus of housing.”

Q2: Should I put pension money in an IRA or pay off car?

I just received my pension from my job after being laid off. I’m 60 years old. Do I roll over the $65K pension to a Roth IRA, traditional IRA or take out some money and pay off a car note at $12K to reduce monthly payments of $410 a month, while on unemployment?

— Millie

Answered by James Royal, senior investing and wealth management reporter: “If you have almost any other option to avoid using your retirement money, then that’s probably your best bet. Once your retirement money comes out of an IRA account and is spent, it can’t go back in. Even if you have to withdraw money to get by, do it monthly to match your need, rather than in one lump sum, since you may get a job in the meantime.”

Q3: Laid off and can’t access 401(k). What can I do?

I’ve been laid off due to the coronavirus. The CARES Act was passed at the end of March. Part of the CARES Act allows me to access my 401(k) without the normal 10 percent penalty, and the tax consequences can be spread out over three years. Upon calling my 401(k) provider, they informed me that I could not access my money under the CARES Act until my employer “approves” the CARES Act. I have reached out to my employer four times in the past two months and have not heard a response from them. Is this true? Is there anything I can do to access my money in the 401(k) account under the CARES Act?

— Robert A.

Answered by James Royal, senior investing and wealth management reporter: “Employers typically manage their 401(k) accounts according to how they see fit, as long as the plan meets the outlines of the law. So unfortunately your employer may be perfectly within the law to not allow you to take a special penalty-free withdrawal. Continue to see if you can persuade your employer to allow you to use the provisions of the CARES Act.

You may have other avenues to access your money, though they may be cold comfort. The first is a hardship withdrawal, but you’ll need to meet one of the conditions such as the inability to meet a house payment. You may also qualify for a loan against your 401(k) balance, and this could avoid you having to pay a penalty tax or even any taxes (unlike even the special CARES Act withdrawals).

The CARES Act has also made a special provision increasing the 401(k) loan limit from $50,000 to $100,000 and even allows you to defer any loan repayments due from March 27 through the end of 2020 for up to a year. However, interest will continue to accrue.

Note, too, that your employer is not obligated to increase the loan limit. If you’re able, avoid accessing your funds, but times are tough, and sometimes you gotta do what you gotta do. Good luck!”

Q4: Should I refinance if I’m retiring in a few years?

Does it make sense to refinance now if retirement is five to seven years away? We’ve been in our home 3 1/2 years and have an interest rate of 3.5 percent.

— Marty

Answered by Natalie Campisi, senior mortgage reporter: “Refinancing only makes sense if you plan on staying in the home long term and if your savings outweigh what you spend on closing costs. In your case, a 3.5 percent interest rate is very low. Although some lenders are advertising rates in the 2s, it’s important to look beyond the rate at the fees for borrowing, which is reflected in the APR. To get a sense of how much you would save based on various interest rate scenarios, you can use Bankrate’s refinance calculator.”

Q5: Should I get a VA loan or traditional mortgage?

Would buying a home be better through VA loan or traditional?

— Liz F.

Answered by Natalie Campisi, senior mortgage reporter: “There are many benefits of going with a VA loan. There are no down payment or private mortgage insurance (PMI) requirements, and borrower qualifications are looser than with conventional mortgages.

However, VA loans do require a funding fee (which can be rolled into the cost of the loan). I would recommend talking to your real estate agent about any hurdles a VA loan might pose. If all things are equal, shop around and go with the loan that has the lowest interest rate and APR (costs associated with the loan).”