Interest rates are changing. Should your plans?
By Bankrate.com
Here's a look at how the Fed's quarter-point
rate increase should or should not affect your plans to borrow or
invest:
Should I change my plans to ...
Buy a house?
Borrow from my home's equity?
Take out an auto loan?
Borrow on a credit card?
Invest in CDs?
Should I change my plans to buy
a house?
Your house is your shelter, and you need shelter no matter
what happens to mortgage rates. Don't shelve your plan to buy a
house just because short-term interest rates are rising. On the
other hand, beware a high loan-to-value mortgage -- a home loan
in which you borrow 90 percent or more of the purchase price.
In places where home values have been appreciating
especially steeply, rising interest rates could make home prices
plateau or even fall in the coming months and years. If prices fall
enough, people with high loan-to-value mortgages could find that
they owe more than their houses are worth. That's OK if they plan
to live in their homes for a long time, because prices eventually
will recover. But woe to homeowners who are forced by circumstances
to buy high and sell low.
Should I change my plans to
borrow from my home's equity?
Rates on home equity loans and equity lines of credit will
still be low by historical standards. If you have a good reason
to tap your home's equity and can comfortably repay the loan, then
do so. Bankrate.com features
an article explaining the differences between home equity loans
and lines of credit. Home equity loans have fixed rates, and averaged
6.87 percent Sept. 15, a little lower than they were at the time
of the Fed's Aug. 10 rate increase. Rates on home equity lines of
credit were 4.81 percent Sept. 15, slightly higher than six weeks
before.
Should I change my plans to
take out an auto loan?
No. Dealers are offering hefty rebates so they can clear their
lots. Negotiate the best deal you can for a vehicle and see what
kind of financing the dealership is offering. Although the interest
rates on vehicle loans will edge upward, if this is the right time
for you to buy a car, go ahead. Also check local credit unions;
they routinely beat banks when it comes to offering low-rate car
loans. Many credit unions base their membership on geographic boundaries,
so it's easy to find one that you can join.
Should I change my plans to
borrow on a credit card?
Depends on how much debt you have and whether you're having
trouble paying it off. We're in the beginning of a period of rising
interest rates that could last for a few years, maybe longer. Credit
card debt will pile up fast. If you are paying considerably more
than the minimum due each month then probably you don't need to
worry about paying a few basis points' additional interest. But
if you're making minimum payments or just slightly above the minimum,
you should be concerned about your debt load. Check here for the
best
credit card deals nationwide.
Should I change my plans
to invest in CDs?
No. Go ahead and buy CDs but keep the maturities short, one
year or less. Shop around for the best rates. You can save a lot
of time and rake in a lot more interest by visiting Bankrate.com's
Highest
Yields page. There are at least 20 financial institutions offering
from 2 percent to 2.57 percent this week on six-month CDs versus
the national average of 1.26 percent that you'd likely find at your
corner bank.
If liquidity is super important to you, check
our listing of the highest
money market rates where you'll find more than a dozen institutions
are offering from 2 percent to 2.20 percent.
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