Use low-interest rates to get more for your money

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While the Federal Reserve’s pledge to keep interest rates low for at least the next two years might not quickly restore consumer confidence or prompt spending, it does provide an opportunity for consumers to get more for their money.

“While low-interest rates mean lower returns on savings accounts, it also means lower rates on borrowing money,” said Daru Burdge, regional president for CredAbility. “Consumers can take advantage of low rates to help them save money on planned purchases.”

CredAbility offers five ideas for consumers to consider while interest rates are low.

• Consider buying a home. While low-interest rates are not reason enough to make the plunge into home ownership, for consumers already considering buying, it may just be the right time.

In many markets, home sales and prices are relatively steady or have begun to rise slightly.

Rates on long-term, fixed rate mortgages are at their lowest rates in decades.

Current FHA guidelines recommend that no more than 43 percent of a consumer’s gross income be used for housing, debt and other financial obligations.

• Already own a home? Consider refinancing. This is a great time for consumers in an adjustable-rate mortgage and plan to refinance into a fixed-rate loan. It may also be a good time to refinance long-term, fixed-rate mortgages.

For example, a consumer who purchased a $225,000 home five years ago and had a rate of 7 percent had a payment of about $1,500 per month and has already paid more than $76,000 in interest.

Refinancing the balance of that loan now at 3.5 percent for 15 years will save that consumer almost $175,000 over the life of the loan and let him pay off your home almost 10 years sooner.

And payments will only go up about $25 per month.

Each situation varies; homeowners can visit http://www.bankrate.com and use their calculators to compare rates and payment.

• Consider buying a car. While car loan rates have not dropped as significantly as mortgage rates, rates have begun to come down, and many manufacturers are offering special financing options and other incentives to encourage prospective car buyers to take the plunge.

“Do your homework,” said Burdge. “Know what you want to buy and compare offers to ensure that you are getting the best deal.”

• Pay 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 consumers 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 creditors, especially for those who have maintained an on-time payment record and have continued to make at least minimum payments.

• Review investment options. Talk with a financial adviser about alternatives to savings and money market accounts.

It may be the right time to expand an investment portfolio and explore options to earn greater returns on savings.