Friday, December 20, 2013

The rate bump: A little bit of historical perspective

Reproduced with the permission of

By nearly all accounts, it seems the downward plunge in the interest-rate roller-coaster ride has finally begun creeping upward again for good (at least, for now). The all-time low mortgage rates over the past five years have pumped enough lifeblood into the housing market that even whispers of the Fed's decision to stop its bond-buying program triggered rate jumps. The Federal Reserve has been pumping $85 billion a month into the financial sector since 2008 in an effort to jumpstart the U.S. economy, but this was only meant to be a temporary fix to rejuvenate the market.

On Wednesday the Fed announced it would begin "tapering" its quantitative easing program - reducing its monthly bond purchases to $75 billion a month. The idea is to ease the market off the stimulus gradually, as unemployment decreases and inflation rises. The increase in mortgage rates over the past six months reflect growing confidence in the economy and housing recovery, indicating that borrowers can perhaps afford an extra percentage of interest on their home mortgage.

As a result, the number of borrowers looking to refinance into new mortgage agreements has leveled off. But a look back at where rates averaged even two years ago show that plenty of borrowers could improve their footing by locking into new mortgages. A rate of 4.5 percent could save you hundreds of dollars a month compared to a 6 percent rate - a typical rate for just a couple of years ago. Contrast that to what homeowners paid in interest 20 or 30 years ago, and 2013 rates seem like a downright steal.

Monday, December 9, 2013

Before you buy your first house

For many young people today, the dream of a white-picket fence and first real home seems to be more just that, a dream, and farther away from a realistic goal. The economy, although improving, is nowhere near the booming '90s and early 2000s, when as far as economic growth was concerned, it seemed like the sky was the limit.

Stable jobs are harder to come by for post-recession college graduates, and many choose to return to school again, adding to their debt burden, to gain more skills and a better shot at a good career. Oftentimes this means relying on credit to get by, assuming it can be paid off years later.

Living on credit, however, quickly turns into a dangerous game. It can seem like a double-edged sword: You need to use credit to build your credit score - crucial to getting qualified for your first mortgage - but you don't want to spend more than you can reasonably pay off in the foreseeable future. Ten years ago, lots of college grads wouldn't think twice about swiping a credit card - they could count on plentiful jobs and steady raises to afford the expense. Graduates today know that may not be the case.

It's smart to have a plan of attack before getting yourself into a spending hole you can't dig out of - a mistake that could take years, sometimes decades, to recover from. Whether you have a goal of owning your first home or simply want to manage your debt and finances responsibly, here are 4 tips to keep in mind.