While the U.S. didn’t go completely over the fiscal cliff, it seems it is still kind of dangling. However, there has been, and will continue to be, an impact on mortgage rates throughout 2013. While you wait for the next shoe to drop, there are some things that can help you now, stemming from what has happened in Washington, D.C. so far.
If you were waiting for the employment picture to stabilize, especially for yourself, now is the time to go ahead with any home purchasing plans you have on hold. If your job seems solid and you have good credit, you will want to take advantage of the low interest rates while they last.
As with home buying, now is also the time to refinance before rates begin to rise. Since taxes weren’t increased (much) it is expected that the economy will grow which puts upward pressure on interest rates.
If you are planning on putting money into a Certificate of Deposit before April 15 or as a matter of course, don’t commit to a long term CD. With interest rates expected to rise, a long term CD could keep you from taking advantage of a higher rate CD a little later. Also, with CDs, saving accounts, and other financial instruments paying such low rates now, it doesn’t make sense to lock in a long term for a low rate.
Now is also a good time to rebalance your savings portfolio. Low interest rates generally favor bonds so if you are more heavily invested there it may be time to rebalance with a selection of stocks with interest rates expected to rise and take stocks with them.
The 2% Solution
One thing that has already gone is your payroll taxes. Remember that 2% cut the government handed out last year? Well, now they are taking it back, so you will have 2% less in your paycheck. In order to counter that, you will want to cut your expenses by 2% also.
Since this is a fairly small amount, taking care of small things should do it:
- Check tires for proper inflation to save on gas.
- Switch to a free checking account.
- Get new insurance quotes to see if you qualify for a lower rate.
- Take advantage of sales on groceries.
What Made Rates Increase?
The current economic climate seems to show a few signs of recovery. This means more jobs, more people working, and more goods being bought. The Fed feels it can stop actively trying to control the interest rate and so the rates increase.
Any economic stimulus tends to make rates go up; it is one of the downsides of a healthy economy. In addition, any fiscal cliff deal will likely involve adding to the deficit which also raises rates. And, of course, all the uncertainty with a future that may include further cuts in government spending and changes in the debt limit will make itself felt through higher interest rates.
You may not feel completely comfortable with the current fiscal brouhaha. But there are some advantages to it right now that, if you can, will save you more money for that rainy day down the road.
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