Posts Tagged ‘interest rates’
Interest rates are low. Most of the time it’s wise to ignore anyone who tells you “you really need to….”, but believe me, you should check the interest rates of all your debt before interest rates rise.
…and when are interest rates going to rise? That’s the problem; I don’t know. Therefore, I recommend you do it right now.
Before We Begin
Make sure you read my post from two weeks ago: How to Take Advantage of Low Interest Rates. It lays out the simple steps to check your credit. You don’t want any surprises if you end up filling out applications to lower your interest rate.
Today, we’ll focus on three areas: your home, auto and credit cards.
How to Refinance Your Home
1) Compare rates through several lenders. This is done easily through a mortgage broker or an online comparison site. While many lenders appear to have different rates, you’ll find those with lower rates generally have higher fees. On the inverse, those with higher rates often have lower refinance costs. Generally, I prefer lower cost mortgages (which often means a slightly higher rate).
2) Gather information about each type of mortgage. Home lenders offer two basic types of mortgages: fixed or adjustable. While there are many iterations of each type, here are some you’ll see regularly during your search:
a) A basic fixed rate mortgage comes in a 15-year and 30-year variety. Usually, a 15-year mortgage will have a slightly lower interest rate than a 30-year option.
b) Adjustable rate mortgages often keep the rate stable for 1, 3, 5, or 7 years, before changing. Usually the rate will change annually after the short fixed period.
Part 1 – Check Your Credit
It’s time for some good news, isn’t it?
Don’t look now, but interest rates are at record lows. Whether you own a home, car, or have a credit card, it’s a wonderful time to begin exploring ways to lower your interest rate. Here’s the really, really good news: a lower interest rate will probably mean lower payments. This can give you financial breathing room to focus on your craft or pay down debt more quickly.
Today, I’d like to make sure you can participate in the interest rate game. Once we’ve solved that problem, we’ll talk later about how to refinance your debt. Sound good? Great!
Let’s move on these steps to check your credit report:
I’m thinking of buying my first home! One quick question: how do I decide between a 15 and 30 year loan?
Congratulations, Gary! That’s a big step, and I’m happy to help you with this huge question. For most people, taking on a mortgage is the largest debt they’ll ever owe. It’s important to do it right.
I’ve noticed some advisors like one type of mortgage better than another. I think each type exists for a specific reason. Unfortunately, this means I won’t be able to answer your question directly, but I can give you some tips to help along the way:
First, you didn’t ask about adjustable rate mortgages–where the initial interest rate is low but can adjust to a higher amount after a specified period of time–but for the vast majority of people, they aren’t a great idea right now. Interest rates are at near all-time lows, so locking into a fixed rate mortgage is best for most home buyers. The exception? If you are absolutely certain you’re going to move again soon, an adjustable rate will save you money.
15 year loans are best for people who want to pay off their mortgage quickly and need the forced discipline of a larger payment. The upside of a 15 year loan is that you’re guaranteed to be mortgage-free in 15 years (assuming you remain in the home). The downside? If you lose your source of income, the monthly payment on a 15 year mortgage will be much harder to meet than a 30 year payment.
30 year loans work best for people who want the flexibility of a lower mandatory house payment. It’s a mistake to think that people with 30 year loans will pay them off over a long period of time. On the contrary, I’ve met quite a few successful savers who chose a 30 year loan and then paid significantly more than the amount due each month. Why? If they ran into financial trouble, their monthly payment was pretty low, and the chances they could meet the payment was better than if they’d bitten off the higher 15 year payment.
Don’t take out the 30 year loan and “hope” to make extra payments. Set up an automatic payment plan for more than the requested amount so that you’re still forced to pay your home off early.
I hope this helps and I wish you happy house hunting! Send us a picture!
So you’ve finally checked your bank statement to discover that you’re getting nearly no interest from your savings account. Should you check out online bank accounts or are those risky?
Internet banking isn’t for everyone. I could never tell my mother to open an online account because she wouldn’t know how to withdraw funds and would worry that she couldn’t run down to the corner to take it out. That said, usually your best interest rates are going to be found with large, reliable banks online.
There are two considerations –
- Are you internet savvy and comfortable saving online? If so, explore away! Websites such as www.bankrate.com will help you compare interest rates when deciding where to invest. You should also check out bankrate’s list of star rankings when determining which firm to trust with your money. All banks aren’t created equal.
If you aren’t internet savvy, it’s better to stay close to home. Check to see if you’re eligible for a credit union. You may be surprised to find very competitive interest rates, which are often better than those at the bank.
- How quickly can you remove the funds? Remember that a savings account pays a low interest rate because it offers quick liquidity. If you’re saving online but don’t have an easy method to access funds, you may defeat the purpose.
You may also want to check other account types at your bank. Often, banks offer higher interest money market accounts with higher rates as long as you promise not to touch them often.
I know they say not to sell stocks when the market is low. Should I be making any moves financially while the markets are so volatile?
Absolutely Sue! In this type of market people panic, creating deals for a shrewd investor. As an artist, you should be comfortable moving against the crowd and looking for opportunities that others miss. Translate this ability into financial moves, and you’ll soon be a pro!
Here are a few ideas:
- People often delay financial transactions when the stock market tumbles, so look for teaser interest rates at banks.
- The Federal Reserve may lower interest rates. If this happens, auto loans and credit card rates drop (mortgages, unfortunately, are more closely tied to long term Treasury bond rates, so you won’t necessarily find opportunities there). If your car loan is at a high rate or your credit card is taking a pound of flesh for every purchase, search for better terms.
- Sell loser stocks and upgrade. If you own mutual funds or exchange traded funds, it’s often best to sit on your hands through a downturn. But if you own individual stocks, this is an opportunity. Down markets usually don’t discriminate between bad and good stocks when the sell-off occurs, sending all of them down together. This could be a good chance to sell underperformers in your portfolio and jump into higher quality companies. Sure, you’ll be selling low, but when the market recoups, quality stocks usually outperform poor quality investments, helping you to make back lost money faster. Making money faster always puts a smile on my face!
I’m setting up my emergency fund at the bank. What type of interest rate would you call “good” on a savings account?
Let’s focus on how to find the best rate, because bank rates change quickly. Interest rates have been extremely low lately, so it’s going to be impossible to find anything that looks like a great rate.
The best rates are usually found with money market accounts. These are still FDIC insured but have limited access. Ask first about money markets at your bank, then try competing banks in the area. Finally, check out credit unions. These institutions often offer higher rates because they’re designed specifically for their members instead of shareholders.
By the way Rita, congratulations on getting started! Although it may not feel like a big step, to me it may be the most crucial one. Taking action to create and move toward financial security is a real leap toward abundance!
PHILOSOPHER GEORGE SANTAYANA SAID, “Those who do not remember the past are condemned to repeat it.” That’s why, at the end of the year, I like to study the past twelve months and ask myself, what is it that I learned? Some years the answers to the question are easy, like in 2000, when the obvious moral was that the stock market doesn’t always skyrocket. In 2002, we were lucky to learn that the inverse, stock markets don’t always plummet, was true. Other years are more difficult, but if you dig, each twelve months you’ll find plenty of learning nuggets buried in the headlines that you can carry into the next year and beyond. 2010 is no exception. Although it wasn’t a year with brilliantly shining financial stories, there is plenty to remember.
Here are my top five 2010 lessons, in descending order:
5) Home ownership is difficult (still). According to RealtyTrac, one out of every 389 homes received a foreclosure notice in the month of October. Banks are still uneasy about loaning money to people for home purchases, and with good reason. If you own a home, having a good cash reserve, a low amount of debt, and a consistent income stream are all vital to maintain your mortgage.