While a low-interest rate can often be a disastrous sign for the economy, that doesn’t mean you can’t make some serious financial moves during this time. With interest rates on student loans, mortgages, and stocks hitting an all-time low, now may be the time to invest some serious cash into your portfolio. Let’s take a look at the ways you can take advantage of low-interest rates.
Buy a Home
Buying a home is likely the biggest investment you’ll ever make, and what better time to do so than during an economic recession? Since today’s mortgage rates hover around 3-4% in many large city centers, you can buy a larger home than you otherwise would during an economic up-turn. You’ll also have less debt, which can give you the capital for other investments.
You should also choose a fixed-mortgage rate during this time, especially if you plan to live in the home for many years. The average country-wide mortgage rate was 3.46% in July 2020, and it’s unlikely to rise in the next few years. With a fixed-mortgage, your rate will not increase over the years but will remain locked during the entire- pay-off period.
Refinance Your Home
Your home was likely bought at a higher interest rate than during the COVID-19 recession. If that’s the case, you can refinance your home and cut back on your monthly mortgage payment. On average, the fixed mortgage rate as of January 2021 is 3.75%, which is a record low. If you have a 6.5% rate, you’ll save around $400 on a 30-year mortgage of $200,000.
If you have a 30-year mortgage term, you have the option of reducing your term to 15-years because it comes with a lower interest rate than the latter. On average, a 15-year mortgage term is 3.22%, which is 0.53% lower than the average 30-year term. While your monthly payments won’t drop, you will pay off your loans much faster.
Refinance Student Loans or Go to School
Over 42 million Americans have student loans, with over 75% of student loan borrowers taking loans to go to two or four-year colleges. Before the recession, the average student loan rate was 5.8-7%, which makes interest almost impossible to pay off by making minimum payments. You can adjust your interest rates to as low as 2.5-3.5% during this time.
On the other hand, if you haven’t gone to school yet and require student loans to do so, right now is the perfect time. We recommend you shop around for a lender that will provide a competitive rate and appropriate terms because some banks may ask for the traditional 5.8-7%. Some lenders may even charge extra fees if you’re not careful.
Pay Off High-Interest Credit Card Debt
Many credit card companies will allow you to transfer your debt from a high-interest credit card to a low-interest one to pay off debt. During the COVID-19 recession, many banks have given out credit cards with interest as low as 0%. However, you’ll likely have to pay a transfer fee in a range of 3-5% to take advantage of this rate.
Depending on how high your credit card balance is, taking the lower rate is usually worthwhile. Or, you could take out a low-interest bank loan to pay off your high-interest credit card, then concentrate on paying off the loan instead. Ask your bank what your options are because you can likely get out of a large amount of debt or prevent yourself from getting into more debt.