Home Equity Vs Refinance - Time For a Rematch

1. There is a battle, a tug-of-war if you will, in between savers and customers in this country. Savers Lament On the saver's side, conditions are dreadful. Rate of interest on certificates of deposit (CD) have dropped substantially to the point where the average rate for a 1-year CD is 0.55% and merely 1.63% for a 5-y CD. Reflect on that for a bit ... your cash locked-up for 5 years earning just 1.63%! Other cost savings lorries are struggling too. For example, a popular fund which contains business bonds from Wells Fargo, AT&T, Wal-Mart, and other blue-chip American companies has an average maturity of 12 years and currently yields about 3.75%. That's 3.75% of taxable interest earnings. Presuming your tax rate is 33%, you're entrusted an efficient, after-tax yield of 2.5% which, my buddy, is less than the historic inflation average of 3%. So, while your bond investment is better than money in the bank and protects you to some level versus inflation, you still wind up with 0.5% lower buying power every year. So savers can't be too pleased about this. While Debtors Rejoice Customers, on the other hand, are having the time of their lives. Last week, the typical 30-year fixed-rate home mortgage struck its lowest level of 4.19%. The kicker here is that mortgage rates ought to in fact be more than 0.5% lower - in the 3.8% variety - based upon their correlation with rate of interest on Treasury bonds. However, rates are unlikely to go much lower so here's a tip: If you remain in the marketplace to re-finance, waiting is probably not going to assist you much. Furthermore, customers of mine are obtaining millions at 2.15% to fund their organisation activities. Seems a Little Unfair Without taking a moral position, it does seem a bit unreasonable that savers, who in a sense are the "good guys" constructing wealth for their future, contributing capital for financial growth and conserving for a rainy day, are being punished for the actions of careless customers and greedy lending institutions. Debtors got in over their heads, didn't take sensible safety measures, and are now getting loan adjustments and reduced rates on the cash they owe. Banks experienced huge losses due to the fact that of bad loaning practices and triggered this drop in

2. rates to ultra-low levels. Nevertheless, this sort of conversation doesn't get us anywhere. What has actually happened, has actually taken place - fair or unjust. So where do we go from here, and how do we make money from all this? What Customers Can Do Have a look at your financial resources from a debtor's point of view. First: re-finance your mortgage NOW if you can because rates most likely aren't going to fall much lower. 2nd: store, shop, look for a much better rate on your charge card. Borrowing costs are dropping all around so why should you pay the usual high rate on your charge card? Find banks that are hungry to lend you cash such as smaller sized institutions and Cooperative credit union, and prevent mega-banks that normally have all the cash they need. Third: newfidelityfunding.com secure a service loan if you require the cash. Banks are loosening up and making loans at fairly low rates that are really engaging despite the danger of slower organisation in this weak economy. However, use sound judgment and good judgment as you handle more financial obligation. Handle "great" debt that funds your house purchase or properties that appreciate in worth. Stay away from handling "bad" financial obligation for diminishing possessions you can ill manage such as a new car or boat. If you should take on "bad" debt, make sure it is short term and pay it off extremely quickly. What Savers Can Do Now the tough part: finding offers as a saver. First: search for a longer-term CD that will change higher if rates increase. There is little even worse than locking your cash in a 5-year CD at 1.50% just to see rates rise to 5% 2 years from now. Second: think about purchasing corporate bonds with maturities of 5 years or less. These bonds still yield more than CDs, but make sure you know what you are purchasing - if the corporation declares bankruptcy, you could lose a good portion of your "safe" investment. Third: consider purchasing high dividend-paying blue-chip stocks. Warren Buffet just recently stated that stocks are more affordable than bonds today, and he's right. There are many solid companies out there whose dividend yields are above 3%. For example, Altria currently has a dividend yield of 6% and a strong history of consistent dividend payouts. So ... it depends on you to be a winner or loser in the savings and borrowing video game. All you have to do is know the realities, choose to act, get on the phone or in your vehicle, and start getting your affairs in order.