The Federal Reserve has a pledge to keep interest rates low until unemployment falls below 6.5 percent and inflation tops 2.5 percent. But with the stock market hitting new records and unemployment beginning to drop, the days of record low interest rates could come to an end within a year.
Consumers should strike while the iron's hot and take advantage of low rates to help them save money on planned purchases.
Here are five things for consumers to consider while interest rates are low:
Buying a home. While low interest rates are not reason enough to make the plunge into homeownership, if you are thinking about buying, it may just be the right time. In many markets, home sales and prices have started to rise. Rates on long-term, fixed rate mortgages are at their lowest rates in decades.
Not sure how much house you can afford? Current FHA guidelines recommend that no more than 43 percent of your gross income be used for housing, debt and other financial obligations.
Refinancing. Already own a home? If you are in an adjustable rate mortgage and plan to stay in your home, this is a great time to refinance into a fixed rate loan. It may also be a good time to refinance your long-term, fixed rate mortgage. If you purchased a $225,000 home five years ago and had a rate of 7 percent, your payment was about $1,500 per month and you have already paid approximately $76,000 in interest. Refinancing the balance of that loan now at 3.5 percent for 15 years will save you almost $175,000 over the life of the loan and let you pay off your home almost 10 years sooner. And your payments will only go up about $25 per month.
Buying a car. Many manufacturers are offering special financing options and other incentives to encourage prospective car buyers to take the plunge. Do your homework; know what you want to buy and compare offers to ensure that you are getting the best deal.
Paying off debt. Although credit card interest rates have not gone down significantly, this is still a great time to pay down debt. Savings accounts are paying little to no returns, and you will be better off in the long run to reduce or eliminate their credit card debt. It may also be a good time to negotiate rates with your creditors, especially if you have maintained an on-time payment record and have continued to make at least minimum payments.
Reviewing your investment options. Talk with you financial adviser about alternatives to savings and money market accounts. It may be the right time to expand your investment portfolio and explore options to earn greater returns on your savings.