Be Interest Rate Wise
Interest rates have become a highly visible issue with news stories about rate changes almost everyday. Much of the press coverage concerns the Federal Reserve and its chairman, Ben Bernanke. Ben Bernanke became chairman when Allan Greenspan retired in early 2006.
The Federal Open Market Committee (Fed) monitors the economy and makes changes to the key “overnight loan” rate that influences interest rates throughout the economy. By adjusting this rate, they try to keep inflation under control and stimulate the long-term economic growth. The Fed lowered this rate several times beginning in 2001 to stimulate the economy and provide liquidity in the financial markets. In the summer of 2004 the Fed started gradually raising the rate as the economy strengthened and to keep inflation in check. That policy continued to be employed through 2005 and early 2006. At the August 2006 Fed meeting, they decided to not raise the rate after 17 straight increases. The rate remained constant through the summer of 2007. In the fall of 2007, the Fed started reducing rates.
In 2008, the Fed reduced rates several times in response to a weakening economy and to provide additional liquidity as financial markets dealt with uncertainties in the sub-prime mortgage and other credit markets. By January, 2009, the Fed had reduced their targeted fed funds rate to a range of 0% to 0.25% and kept that target throughout 2009, 2010 and 2011.
Interest rates also play a major role in our economy and in our daily lives, especially when it comes to borrowing.
Develop a Borrowing Strategy
The wise use of credit can be an important part of your personal and business financial strategies.
- Use common sense. Never borrow what you can’t repay. Prioritize your borrowing based on long-term value. Reserve some borrowing capacity for emergencies.
- Consider all the terms. Borrowing can be confusing. Review all the terms and conditions before you sign any credit application.
- Get help if you need it. If your borrowing gets out of control, take immediate steps to solve the problem. Contact lenders to work out a repayment plan. Quit using (or cut up) credit cards. Seek the help of a qualified credit counselor.
Real Estate Loans
Mortgage rates are low, as are many home equity loan rates. Now is a great time to get a mortgage on a new home, refinance an existing mortgage or use a home equity loan to consolidate your debt with a lower rate (and potential tax advantages).