Now is the time to either buy a home or refinance if your personal situation allows.
7 smart ways to pounce on low interest rates-From BankRate
While go-go lending was partly to blame for the economy's current financial troubles, ironically, borrowing money may help ease the country out of the downturn. At least that's the thinking behind the Federal Reserve's recent pledge to keep low interest rates into 2013.
While this move has not triggered an uptick in consumer confidence, experts agree money probably won't get any cheaper to borrow than right now. At press time, average rates for 30-year fixed-rate mortgages, home equity loans and even 60-month new-car loans are hovering around 4.3 percent, 6.8 percent and 5.3 percent, respectively, according to Bankrate's weekly survey of interest rates.
If you have a good-to-excellent credit score and not a lot of debt, you may want to consider ways to take advantage of these historically low interest rates, says Jessica Cecere, regional president for CredAbility, a nonprofit credit counseling and education agency in West Palm Beach, Fla.
"Interest rates are so low that consumers should take advantage of these rates, if they can afford to, to help them save money on planned purchases," Cecere says.
While this move has not triggered an uptick in consumer confidence, experts agree money probably won't get any cheaper to borrow than right now. At press time, average rates for 30-year fixed-rate mortgages, home equity loans and even 60-month new-car loans are hovering around 4.3 percent, 6.8 percent and 5.3 percent, respectively, according to Bankrate's weekly survey of interest rates.
If you have a good-to-excellent credit score and not a lot of debt, you may want to consider ways to take advantage of these historically low interest rates, says Jessica Cecere, regional president for CredAbility, a nonprofit credit counseling and education agency in West Palm Beach, Fla.
"Interest rates are so low that consumers should take advantage of these rates, if they can afford to, to help them save money on planned purchases," Cecere says.
So what are some smart borrowing decisions to make while interest rates are low? Here are a few.
1. Buy a Home or Rental Property
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.
Since rates are so low, consider getting a 15-year instead of the traditional 30-year mortgage. "The amount you will save in interest payments over the life of the loan is enormous," says Scott Stratton, author of "Your Last Five Years: Making the Transition from Work to Retirement."
If you already own a home and have some money stashed away for a down payment, now may be a good time to think about buying real estate for passive income, says Greg McFarlane, author of "Control Your Cash: Making Money Make Sense."
Not only are mortgage rates and property values low, but the rash in foreclosures mean more people are in need of shelter."They're called renters, and they're your cash cows," says McFarlane. Not only will you get regular income from renting property, but as a landlord you can take tax breaks in the form of mortgage interest deductions.
2. Refinance Your Home
If you want to get out from under an adjustable-rate mortgage -- and you aren't upside-down on the loan -- now is a good time to switch to a fixed-rate mortgage. Use an online mortgage calculator to figure how much you'll save with the new rate.
While you're at it, look into refinancing your 30-year mortgage into a 15-year loan so you don't inadvertently add many years of interest payments to your mortgage.
For example, a $225,000 house purchased five years ago with a 30-year loan or mortgage rate of 7 percent has a monthly payment of around $1,500 a month with about $76,000 worth of interest paid in those five years. If you refinance the balance of that loan now at the current 3.5 percent interest for 15 years, you'll save almost $175,000 over the life of the loan, plus you'll pay off the home almost 10 years sooner. And your payments will go up only about $25 per month.
"Focusing only on monthly payments is penny-wise and pound-foolish in the long run," says Stratton.
"Owning a home outright and having no monthly mortgage payment goes a long way. ... In 15 years, when the house is paid off, it can literally make the difference between being able to retire or not."
3. Buy a Car
If you're in the market for a new car, now may be the time to trade in your clunker. Car loans aren't as rock-bottom as mortgage loans, but manufacturers are offering plenty of incentives, such as special financing options. Still, at press time the average 60-month new-car loan was around 5.3 percent, according to Bankrate's weekly survey, and some car loans are even cheaper.
"This is where a person with good credit can use that credit as a force multiplier," McFarlane says.
"Stretch out your financing dollar for as long a term as possible, especially since inflation can't be postponed forever."
If you are still paying off your current car, you may want to consider refinancing the remaining car loan at lower and more favorable interest rates.
If you are fortunate enough to have extra money to give away, low interest rates make it easier to be generous and charitable, says Alexey Bulankov, a financial adviser and CFP with McCarthy Asset Management Inc. of Redwood Shores, Calif.
"This environment of low rates and poor economic conditions, combined with a massive intergenerational wealth transfer and looming estate, gift and income tax hikes create a once-in-a-lifetime opportunity to give, borrow, move money, be charitable and create a legacy," Bulankov says.
Look into strategies such as a charitable lead annuity trust, or CLAT, which combines philanthropic with wealth-shifting goals by allowing the grantor to put money into a trust that pays out to a charity during the life of the grantor. At the end of the grantor's life, the remainder is passed to beneficiaries. CLATs work well in a low interest rate environment. If the performance of the investments exceeds the "Section 7520" interest rates -- used to value certain charitable interests in trusts and published monthly by the IRS -- then the excess earnings at the end of the term pass to the beneficiaries tax-free, Bulankov says.
"The lower the 7520 rate, the larger the potential gift to the family or heirs," he says.
5. Review Investments
While you don't want to spend money in a down economy on investments that are not giving you much in return, you may want to look into ways you can diversify your portfolio and spread the risk, Cecere says.
Talk to your financial adviser about alternatives to savings accounts and money market funds, asking for options that earn better returns on your savings. Also, be wary of buying investment vehicles such as bonds when interest rates are low.
6. Lock in Student Loan Rates
7. Pay Off Credit Card Debt
While mortgage and car loans have favorable interest rates, the same is not true for borrowing money on your credit card. Work on reducing or eliminating this debt. If you have a choice of putting money into a savings account or paying off debt, pay off the high-interest credit card debt first because financial institutions are paying very little interest in savings accounts.
While mortgage and car loans have favorable interest rates, the same is not true for borrowing money on your credit card. Work on reducing or eliminating this debt. If you have a choice of putting money into a savings account or paying off debt, pay off the high-interest credit card debt first because financial institutions are paying very little interest in savings accounts.
You also may want to negotiate lower interest rates with credit card companies, particularly if you have a good track record with paying on time, Cecere says.
2) In the Markets today:
Strong earnings from IBM powered blue-chip stocks even as discouraging quarterly reports from other bellwethers kept a lid on broader market gains.
Stocks close mixed on tech giants' earnings-From USA Today
Microsoft and IBM drove the Dow Jones industrial average higher, ending Friday's trading session up 96.50 points to 12,720.48, after the tech giants reported stronger earnings than analysts had expected.
But an earnings miss by Google caused its stock to plunge, and the Nasdaq composite index ended the day down 1.63 points to 2,786.70. The broader Standard & Poor's 500 index closed up less than a point to 1,315.38.
Microsoft (MSFT) said sales of Xbox games and Office software helped push revenue up in the last quarter of 2011. IBM (IBM) credited better sales of software and services and raised its earnings outlook for the year. Microsoft ended the day up 5.7%. IBM ended the day up 4.4%.
Plenty of things are going right, said Frank Fantozzi, CEO of Planned Financial Services, an independent wealth manager in Cleveland. Applications for unemployment benefits dropped last week to the lowest level in nearly four years. Housing sales are steadily rising. And even though high-profile companies such as web giant Google (GOOG) and investment banking firm JPMorgan Chase (JPM) have posted disappointing earnings results in the past week, the bulk of companies are beating estimates, he said.
"Overall, we're moving in the right direction and it's bolstered the market," Fantozzi said. "The S&P getting over 1,300 this week is a nice sign.
Google lost 8.4% Friday after its earnings per share fell a dollar short of analysts' estimates. The misfire stemmed from an 8% drop in prices that the Internet search giant charges advertisers per click.
In a sign that investors are becoming more willing to take on risk, the yield on the 10-year Treasury note rose to 2.03%, the first time it's been above 2% in two weeks. The yield, a widely used benchmark for corporate and consumer borrowing, has been mostly trading below 2% since early December because investors mostly wanted to park their money in relatively low-risk assets.
Adding to upbeat investor sentiment was a report from The National Association of Realtors, which said home sales rose 5% in December, the third straight monthly increase.
Of course, concerns about debt talks in Greece still hang over the market. Greece is in the middle of talks with creditors to reduce its debts, get the next round of bailout funds, and avoid default when the nation's €14.5 billion bond repayment comes due in March.
Among other companies in the news:
— Capital One Financial (COF) lost 5.6%. The bank and credit-card company's earnings sank 41% as expenses for marketing, salaries and legal fees jumped compared with the year before.
— Schlumberger (SLE) rose less than 1% even though the oil-field services company's quarterly profit surged 36%, helped by exploration work in the Middle East and Africa. The company also raised its quarterly dividend to 27.5 cents.
Stocks have been on a slow and steady climb to start 2012. The S&P 500 has closed higher on 10 of 12 days and is up 4.2% for the year. Nearly all recent economic reports have reflected an improving U.S. economy. However, the euro debt crisis is a dark cloud that will continue to hang over the markets for months to come.
On Friday, the Greek government met with debt inspectors from the European Union, the European Central Bank and the International Monetary Fund. It's also held a third day of talks with creditors to negotiate reduce the value of the creditors' Greek bond holdings. Greece wants creditors to agree a €100 billion ($129 billion) writedown although details of a deal have not yet been announced.
Last October, Greece's eurozone partners sanctioned a deal in which private creditors would take a cut in the value of their bond holdings to help lighten the country's debt burden.
Hopes for such a deal as well as a run of successful European bond auctions and solid economic news out of China, are helping to bolster market sentiment. Many stock indexes have risen to five-month highs, while the euro has clambered off 17-month dollar lows.
In Europe, the FTSE 100 index of leading British shares was flat at 5,741 on Friday, while Germany's DAX fell 0.5% to 6,385. The CAC-40 in France was down 0.5%, too at 3,312.
The euro gave up some recent gains, and was trading 0.5% lower at $1.29 to end the week.
Analysts warned that investor optimism could evaporate if no Greek deal is struck with the Institute of International Finance, which represents private-sector bondholders. Even if a deal is struck, it won't end all of Greece's debt problems, which are at the heart of Europe's debt crisis.
Investors may conclude that a Greek debt restructuring is not a one-off, but must be repeated in other debt-hobbled countries across the troubled 17-nation eurozone.
Earlier, Ireland and Portugal were both bailed out, and Portugal is widely considered to be more at risk of needing further help than Ireland due to the dearth of economic growth.
"There remains the danger for bondholders that at some stage Portuguese politicians decide to follow the Greek example," said Gary Jenkins, director of Swordfish Research.
Earlier in Asia in the last trading day before Chinese New Year holidays begin Monday, the Shanghai Composite Index climbed 1% to 2,319.12. Japan's Nikkei 225 index rose 1.5% to close at 8,766.36. Hong Kong's Hang Seng added 0.8% to 20,110.37 and South Korea's Kospi jumped 1.8% to 1,949.89.
Oil prices tracked equities lower — benchmark oil for February delivery was up 84 cents to $99.55 per barrel in electronic trading on the New York Mercantile Exchange.
3) Top financial story of the day:
GE 4th-quarter profit falls, sales decline and miss Wall Street estimates
GE 4Q profit falls, sales miss estimates-From AP
General Electric Co. said Friday that its fourth-quarter earnings fell 18 percent as revenue declined after it sold its stake in the NBC network.
Revenue of nearly $38 billion was lower than what Wall Street expected.
Shares fell 44 cents, or 2.3 percent, to $18.71 in morning trading.
The Fairfield, Conn., industrial conglomerate, which makes everything from jet engines to light bulbs, earned $3.73 billion, or 35 cents per share, compared with $4.54 billion, or 42 cents per share a year earlier.
Revenue fell 8 percent to $37.97 billion. The decline was largely due to the company's sale of its majority stake in NBC Universal to Comcast last year. But GE also said it also saw slower growth in Europe, and its ongoing effort to make its GE Capital financing arm more efficient reduced revenue at the unit by 9 percent. GE Capital is the company's second-largest segment.
Excluding discontinued businesses and certain pension costs, earnings were 39 cents a share. That topped analysts' forecast of 38 cents, based on a FactSet survey. But revenue fell below Wall Street's $40.05 billion estimate.
GE said infrastructure orders rose 15 percent in the quarter, leaving it with its biggest-ever order backlog of $200 billion.
For all of 2011, the company earned $14.15 billion, or $1.23 per share, up 22 percent compared with $11.64 billion, or $1.06 per share, in 2010.
It expects to post double-digit earnings growth this year over last in its industrial and capital segments, but it still expects to see continued economic volatility.
4) Inspirational Quotes@Inspire_Us from Twitter:
When you follow the dream in your heart, you're energised, inspired, & motivated. -Dr. John F. Demartini
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