The Federal Reserve is keeping a tight rein on interest rates to keep our economy chugging along. Now might be a good time to take advantage of lower loan rates and refinance some of your existing debt.
One of the easiest and least complicated loans to refinance is your current auto loan. Many of us finance our vehicles directly with the car dealer because it’s easy and convenient. It gives us the one-stop shopping experience. But sometimes we pay a price for that convenience by paying a higher interest rate on the loan than what is available directly from your credit union.
Refinancing your auto loan from a mega auto financing company or from another bank, credit union or financial institution may be an opportunity for you to save money each month. The process is much less complex than refinancing a mortgage and can usually be completed within one business day.
Mortgage refinancing will take more time and more paper work than an auto loan, but the savings can be worth it. There are several different ways to adjust your home loan that could help you save money.
If you refinance your mortgage with the same term to a lower interest rate, you will immediately save money on your monthly payment. Homeowners with less than 15 or 20 years on their mortgage may want to refinance to a 30-year mortgage with a lower rate and invest the monthly savings into a higher yield investment. This strategy obviously bears some level of risk because in today’s marketplace that would require a yield of something above 6% which would be especially hard to find in an insured savings account.
Another refinancing option is to obtain a mortgage for more than the amount of your current outstanding loan balance. This strategy is called a cash-out refinance. The amount of cash above the loan balance could be used to pay off other higher interest rate debt.
Lastly, transferring credit card balances to a lower rate card is smart. Be careful if you’re taking advantage of a 0% transfer balance promotion. These types of offers are usually good for a specific time period and then the rate skyrockets. If you don’t pay off your balance before the date of the rate switch, you could end up paying a higher interest rate on your outstanding balances than you were with the original card.
Rate shopping is fairly easy because most financial institutions provide their interest rates online. Take the time to look at your current loan statements to see the exact interest rate you’re paying and compare it to the loan interest rates that are offered today. Be sure to include your credit union, VSECU, in that rate comparison.