The Federal Reserve has lowered the Federal Interest rate to 0.25% making it cheaper for banks to borrow money from one another. The result: interest rates for consumers are at an all-time low. If you need and can borrow money, now is a good time to do so. But you might also benefit greatly from refinancing your active loans right now.
Refinance your mortgage
It’s not a straight shot, but if you can still prove a steady income, similar to the one you had when you first qualified and a strong credit score, there’s a chance you can save a couple of quarter points on your interest rate, which could add up to hundreds of dollars a month and much more in the long run. But refinancing has a cash cost at the time of closing, so make sure you do the math!
Refinance your car
Just like with any car refinance, make sure to weigh the pros and cons – if you’re toward the end of your loan, the process might not be worth it since most of the interest has already been paid at the beginning of your loan. Taking a new loan will require another hard inquiry on your credit and may lower your score. And of course, be aware there will be a cash cost with closing fees (re-registration fees, lienholder transfer…).
Open a Home Equity Line Of Credit (or HELOC)
If you own your home, you’re able to borrow money against the equity of your home – the money is available to you whenever you need it, and you repay it over time, pretty much like a credit card, with a much lower interest rate, especially now. According to bankrate.com, the average interest rate on a HELOC was 4.8% on May 4, 2020. Just like with any other loan, the bank will check your credit and your income. But you should hurry, due to the current situation, some lenders have stopped taking applications. In general, a HELOC is a great tool to add to your emergency fund plan.
Refinance your student loans
With lower interest rates, refinancing a student loan might sound like a good idea. And it can be. But there are a few things you should know first: only private lenders can offer refinancing, the federal government can’t. If you have a federal loan, the change in the Federal interest rate WILL NOT impact your current loan – federal student loans are always at a fixed rate. But you CAN refinance your federal loan through a private lender. By doing so, you might receive a much better interest rate – some lenders have reported rates as low as 1.99%, but you will also lose some of the key protections and flexibility (including forgiveness) that come with the Federal loan.
Make sure to do your homework, weigh the pros and cons and get quotes from multiple lenders. Lenders will always need to check your income and your credit score and ask you for tons of paperwork before approving your loan. Yes, now could be a good time to refinance. But if you’re currently struggling with income or debt or just handling life, you probably shouldn’t add more stress by worrying about refinancing quotes and gathering paperwork.