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How to Put Better-than-Ever Interest Rates to Work for You – Part I

If there’s one good thing that has come out of the economic downturn during these past few years, it’s rock-bottom interest rates.  And while it may seem a strange concept to borrow money in a time when the economy’s reeling, odds are there won’t be another time in the near future when borrowing money is this inexpensive.

According to Bankrate, a leading aggregator of financial rate information that issues a weekly survey of interest rates, currently the average rate for a fixed-rate, 30-year mortgage is just 3.59 percent, a 60-month new car loan comes with an average interest rate of 4.12 percent, while a $30,000 home equity loan is being issued at an average 6.11 percent interest rate.

The hope is, of course, that those who managed to survive the recession relatively unscathed — in other words, Americans without a great deal of debt who have somewhere between a good and excellent credit score — are now in a position to make a positive and significant impact on the overall economy.

There are plenty more opportunities like these to put these uncommonly low interest rates to work for your life and budget.  Consider what follows to be food for thought — and should you find yourself in the position to make a positive investment in your current or future needs, remember, now’s the time to jump on this rare opportunity to take advantage of these historically low interest rates.  The money you save will be well worth exploring these options, but before you leap, make sure you have your advisor take a look at the situation with you.

Thinking about buying a new home?

If you’ve been thinking of buying a home, today’s environment of low home prices and low long-term fixed-rate mortgages is the best the country’s seen in more than 20 years, so now’s the time to make your move, so to speak.

Rates on long-term fixed-rate mortgages are at their lowest in decades. If you have been putting off your decision to buy a house, now may be the “perfect storm” of low interest rates and low home prices.  And with rates this low, talk to your advisor about getting a 15-year mortgage instead of a 30-year mortgage.  If it’s in your budget, electing this term will save you thousands in interest over the course of the loan.  The current rate for a fixed 15-year mortgage is an unheard-of 2.89 percent.

Considering investing in a rental property or two?

If you already own a home and have some savings stashed away, now could be the ideal time to invest in real estate.  The aforementioned low interest rates and home prices could become a valuable resource of retirement cash, if you invest wisely.  And when you consider the flood of foreclosures largely responsible for such affordable real estate, you can’t help but realize many families are in need of a good rental home.

Potential renters abound in today’s economy, and landlords even benefit from mortgage interest deductions on their taxes, so if this notion has ever appealed to you, now’s the time to discuss investing in rental properties with your advisor.

Looking to avoid an ARM or refinance your home?

Provided you’re not upside-down on your loan, if you’re stuck with an adjustable-rate mortgage and long to switch to a good fixed rate, there will never be a better time to do so.  And as long as you make the switch, be sure to discuss the merits of a 15-year mortgage versus a 30-year mortgage with your advisor.  If you can swing the monthly payments, not only will you save yourself staggering interest payments, you’ll also own your home that much faster, a delightful concept that only becomes more so the closer you are to retirement.  Refinancing now could save you thousands in the future.

In Part II of this article, we’ll explore a few other ways you can benefit from low interest rates.  We’ll cover automobile purchases, what to do with credit card debt, philanthropy and even retirement planning.