The economic downturn and ongoing credit crunch have been at the top of the news. Even those who aren’t at risk of foreclosure and don’t need to tap their retirement accounts anytime soon still have questions.
We asked experts in various fields for advice on a few practical scenarios that some people are experiencing. Here are their responses to five common questions.
Q: Is it a good time to refinance a mortgage?
A: Though not quite at all-time lows, rates are terrific right now. If your current mortgage is at 7 percent or higher, “longer-term money is considerably cheaper than short-term,” according to mortgage broker Jim Spray. Many adjustable rate mortgages are now more than 8.75 percent, and 30-year fixed notes are below 6 percent, a rare inverse. Good credit, though, is paramount.
Q: What about using credit cards for regular daily purchases to build points or awards?
A: Credit-card rewards make sense only to those who pay balances each month, because the annual percentage rate on them is typically higher than on non-reward cards. Keeping a balance means you’re actually subsidizing the program. Says Ben Woolsey of : “If you can pay it off, you might as well load up, but keep in mind, if you’re using more than half of your credit, it might affect your credit score.”
Q: If you planned a big-ticket purchase such as a furnace or bathroom remodel, should you go ahead with it?
A: Borrowing money is more difficult now and only the most creditworthy are likely to get good terms. “If it’s a luxury masked as a necessity, you’ll need to re-evaluate,” says John Ulzheimer of . Home equity lines of credit are drying up, and cash advances on a credit card are not a good idea to fund a project because they affect your credit score. Unsecured personal loans might be a better option because they carry a fixed rate and payment term. But if you really don’t need it, put it off.
Q: Should you proceed with plans to buy a house if you were looking before the meltdown happened?
A: Absolutely. Depending on the area that interests you, prices couldn’t be better. Keep in mind that it might be harder to qualify for a mortgage and you’ll likely need a bigger down payment. But if those aren’t deterrents, a good Realtor will help you narrow down which areas have the best buys. If you already own a home, selling it could be difficult, Spray says. “Don’t go under contract to buy until you have (a contract) to sell,” he said.
Q: What about a big event you had planned? Should you go through with it anyway?
A: “Cancel all the weddings and no bar mitzvahs until you’re 14!” quipped Edgar Dworsky of ConsumerWorld . Some things simply can’t be canceled and it’s best to finance them in the most equitable manner possible. Existing home equity lines of credit might help, as could personal loans, but only for the most creditworthy. Resist using a credit card. Today’s debt is still tomorrow’s debt, too, only with interest. Vacations, however, might be getting cheaper by the moment, especially cruises, Dworsky said. “There are some great deals out there since traffic is down, but get a sense of prices first.”
