Home Equity Loan and Loan Modification

1. There is a fight, a tug-of-war if you will, between savers and borrowers in this country. Savers Lament On the saver's side, conditions are dreadful. Rate of interest on certificates of deposit (CD) have actually dropped substantially to the point where the average rate for a 1-year CD is 0.55% and simply 1.63% for a 5-y CD. Assess that for a bit ... your money milebrook financial address locked-up for 5 years earning just 1.63%! Other cost savings vehicles are struggling too. For example, a popular fund that contains corporate bonds from Wells Fargo, AT&T, Wal-Mart, and other blue-chip American business has an average maturity of 12 years and presently yields about 3.75%. That's 3.75% of taxable interest earnings. Presuming your tax rate is 33%, you're entrusted to an effective, after-tax yield of 2.5% which, my friend, is less than the historic inflation average of 3%. So, while your bond investment is much better than cash 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 delighted about this. While Borrowers Rejoice Borrowers, on the other hand, are having the time of their lives. Recently, the average 30-year fixed-rate home mortgage struck its lowest level of 4.19%. The kicker here is that mortgage rates should actually be more than 0.5% lower - in the 3.8% variety - based upon their correlation with rates of interest on Treasury bonds. Nevertheless, rates are unlikely to go much lower so here's a pointer: If you remain in the market to refinance, waiting is probably not going to help you much. Furthermore, customers of mine are borrowing millions at 2.15% to money their business activities. Seems a Little Unfair Without taking a moral stance, it does appear a bit unjust that savers, who in a sense are the "good guys" developing wealth for their future, contributing capital for economic development and conserving for a rainy day, are being penalized for the actions of careless borrowers and greedy lending institutions. Debtors got in over their heads, didn't take sensible preventative measures, and are now getting loan modifications and reduced rates on the cash they owe. Banks experienced enormous losses since of bad loaning practices and caused this drop in rates to ultra-low levels. Nevertheless, this type of conversation does not get us anywhere. What has taken place, has happened - reasonable or unjust. So where do we go from here, and how do we profit from all this? What Debtors Can Do Have a look at your financial resources from a borrower's point of view.

2. First: re-finance your home mortgage NOW if you can because rates most likely aren't going to fall much lower. 2nd: shop, shop, look for a much better rate on your credit card. Loaning costs are dropping all around so why should you pay the usual high rate on your credit card? Find banks that are hungry to provide you money such as smaller organizations and Credit Unions, and prevent mega-banks that normally have all the cash they need. Third: get a service loan if you require the cash. Banks are chilling out and making loans at fairly low rates that are really compelling regardless of the danger of slower business in this weak economy. However, utilize good sense and profundity as you handle more debt. Handle "excellent" financial obligation that funds your house purchase or possessions that value in worth. Stay away from taking on "bad" financial obligation for diminishing assets you can ill afford such as a brand-new car or boat. If you need to handle "bad" financial obligation, make certain it is short term and pay it off extremely rapidly. What Savers Can Do Now the tough part: discovering offers as a saver. First: try to find a longer-term CD that will change greater if rates increase. There is little bit 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 understand what you are purchasing - if the corporation goes bankrupt, you could lose a great chunk of your "safe" investment. Third: think about purchasing high dividend-paying blue-chip stocks. Warren Buffet just recently said that stocks are more affordable than bonds right now, and he's right. There are lots of solid companies out there whose dividend yields are above 3%. For instance, Altria presently has a dividend yield of 6% and a strong history of constant dividend payments. So ... it's up to you to be a winner or loser in the cost savings and borrowing video game. All you need to do is know the facts, decide to act, get on the phone or in your vehicle, and start getting your affairs in order.