Fed Rates Stay Low – So What?

On Wednesday the FOMC (aka The Fed) announced that they will  continue to keep the Federal Funds Rate at a low 0%-0.25%.   While the consumer doesn’t get to take advantage of rates that low, we do get to feel the trickle down effect in our financing.  So you might ask yourself.. “How can I take advantage of the the low Fed Rate?”.  Here are some thoughts about how you make low borrowing rates work for you.

Borrow Low and Lend High – Traditionally, this is how Big Banks get rich (when their not loosing money on derivatives…)  They borrow your money (checking / savings accounts / CDs) at relatively low interest rates (0%-2%) and lend it out (credit cards / Mortgages / Auto Loans)  at higher rates (6% – 29%). Obviously a winner right, but how can We do that without having those means to “lend money”?

Use Time to your advantage – To mimic the Banks’ trick of Lending High, take advantage of low rates by knowing that they won’t always be low.  Financial Markets tend to be cyclical.  If you can borrow and hold low cost money, over time you can earn more than it costs you to borrow it.  This can be accomplished using your mortgage and the power of compound interest (ie CD investments).  For brevity’s sake I’ll play this out in a future post, but for now it’s enough to know that it’s possible.

Payoff High Interest Debt with Lower Interest Debt –  During the Equity boom many folks took advantage of the Home Equity Line of Credit.  These loans are typically tied to the Fed Rate and have very low rates right now.  If you have available credit, you may considering paying off your higher interest debts with this lower rate money.  Keeping the payment the same, lower rate debts will be paid off faster than high rate debts.

So that’s just 3 of the ways you can take advantage of the current low rate environment to boost your overall financial health. To learn how we can help you in your particular situation simply shoot me an email and we’ll make some time to come up with a strategy.

 

Jeremy Beck | Mortgage Planner

jeremy@GreenMeansGrow.com | 858-273-2629