Here’s how you can take advantage of the low interest rates

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Mortgage and student loan interest rates have hit record lows thanks to efforts by the Federal Reserve to prop up the economy during the COVID-19 crisis. A 30 year fixed rate mortgageFor example, it currently carries an average interest rate of around 3%; In the week of August 8, the average rate hit a record low of 2.88%.

Meanwhile, federal student loan borrowers will pay the lowest interest rates ever in the 2020-21 period. Prices on subsidized and unsubsidized federal student loans For students it is 2.75% and for unsubsidized loans for doctoral and professional students it is 4.3% – compared to 4.53% in the previous year and 6.08% in the previous year.

But does that mean you should buy a house or borrow it for school this year, even if you hadn’t planned it out? To find out what low interest rates mean for consumers, Forbes Advisor credit analyst Brianna McGurran hosted one Facebook live conversation on Tuesday with Rob Humann, General Manager of Credible, a credit marketplace and Forbes Advisor partner.

Here are the top food stalls for the event.

Don’t let low interest rates lure you into borrowing

Taking on debt is an important obligation, especially in times of economic uncertainty. If buying a home or funding your education wasn’t originally part of your 2020 plans, low rates shouldn’t change that.

Before borrowing, consider the stability of your income and employment situation and take a look at the other debt payments you make each month. According to Humann, they shouldn’t make up more than 30% to 50% of your income. So think about whether a new monthly invoice would exceed this amount. In addition, a mortgage that many borrowers take out for 30 years in particular is a significant obligation.

“Thirty years is a long time, and it’s honestly a fair amount of debt that most people take on when they get their mortgage,” said Humann. That means low rates shouldn’t be the only factor in your decision. Your monthly budget, the amount of emergency savings, your long-term goals, and your job security should also be considered.

Weigh up the costs and benefits of refinancing

Mortgage or under certain circumstances Refinancing student loans This could translate into significant interest savings, especially in a low interest rate environment like the one we are in right now. But refinancing isn’t always a slam dunk.

For example, Humann recommends Refinancing a Mortgage Only if you get a new interest rate that is at least a full percentage point below what you are currently paying. Additionally, Refinancing of a federal student loan It may not make sense this year as the federal government has suspended monthly payments for most federal student loan borrowers and has set interest rates at 0% through December 31, 2020. When you refinance with a new private lender, you will no longer have the option to take advantage of that interest-free vacation from payments.

Interest rates could stay low through 2021, but that’s hard to predict, Humann said.

“It will depend on the form of recovery that comes from the pandemic or how we learn to live with an element of the pandemic,” he said.

The Federal Reserve will likely review unemployment rates and economic growth before deciding whether to raise rates again, he said.

Always compare the loan options

One of the best ways to ensure that you are getting the lowest interest rate possible, now or anytime, is to compare your options across multiple lenders.

Some lenders make this easy by offering a prequalification on their websites that allows you to get a rate estimate without undergoing one hard credit request. A hard query that comes up when you submit a full loan application negatively affects your credit score. However, the prequalification usually does not affect your credit at all.

Once you have an interest rate estimate, you can also compare the additional features and characteristics of the lenders, such as: B. the options they offer when you run the risk of defaulting on payments. Interest rates aren’t everything, and knowing the details of each loan you are considering can help you determine which one is best for you.

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