by Guest on September 16, 2009
To some, the interest rate is a rather meaningless number that seems to change on an almost daily basis. However, if you are applying for a credit card, buying a new car or applying for a mortgage, this number can significantly affect how much you are paying every month and over the term, or length of your loan. At the time of writing, mortgage rates are low and it is a good time to buy a home, or refinance an existing mortgage at a lower rate.
The interest rate is defined as the amount of money it will cost you to borrow a certain amount of money from a bank or lender. It is virtually impossible to accurately predict mortgage interest rates; one of the biggest factors that influence them is simple supply and demand. If more people are buying houses, more money is being borrowed, which means that lenders can charge higher rates to borrow the money. In a slow economy, less people are borrowing money, rates are generally lower to attract customers, and there is more money to lend.
The mortgage interest rate affects you both in the short term and the long term. A rate that is lower means that your monthly payments are lower; it also means that over the term of the mortgage, you are paying less. Whereas the traditional mortgage is taken out for a period of 30 years, a lower rate means that you may perhaps be able to take out a shorter term mortgage, of 20 or even 15 years. Also, it means that you will own your home outright, sooner rather than later – a big advantage.
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For the most part, setting up preauthorized payments for your bills is a good idea. It’s convenient, and it ensures that your bills will be paid on time. When life gets busy you don’t have to worry about remembering to pay your bills.
However, there is another side to preauthorized payments that you need to consider. If you are on a tight budget – living from paycheck to paycheck, you may not find preauthorized payments helpful. Why? Because if you suddenly realize you cannot afford to have the payment deduct from your bank account, you will have to go through the hassle of contacting your payee and they often need at least 2 weeks notice in order to cancel a payment. You can often place a stop payment on the item through your financial institution but it will cost you. So, if you really don’t know from month to month if you will have enough to pay your bills, I wouldn’t recommend setting up preauthorized payments.
Preauthorized payments are good for people who know they’ll have enough to pay their bills, and who don’t want to be bothered with having to pay them manually each month. They are also a great way to tuck away money for retirement. Set up a preauthorized payment into your retirement savings account on pay day and you won’t miss the funds.
If you do use preauthorized payments, be sure to use an account that always carries enough funds so that you don’t ever get caught off guard. You don’t want to be stuck paying hefty NSF (nonsufficient fund fees) to your financial institution.
ATM use can be costly if you aren’t careful. Before using an ATM, I would recommend first finding out how much the fees are going to be. Check with your financial institution (FI) to determine what fees they will charge you. Keep in mind that even if your FI doesn’t charge you, if you use another bank’s ATM the other bank will charge you! If you discover that you are being charged for ATM withdrawals, either make one large withdrawal instead of several smaller ones, or consider using your debit card or credit card instead of using cash to make purchases. You can also ask for cash back at local grocery stores and other retail stores. ATMs certainly are convenient, but make sure that you are not paying excessive fees when using them. Here are two questions to ask your FI:
1. Am I charged any fees if I use your ATM machines?
- for cash withdrawals?
-for transferring funds?
-for balance inquiries?
2. Do you charge me fees if I use another FI’s ATM machines? If so, how much?
It is really important to take a close look at your current banking products to see if they are working for you. For instance, if you look at your bank statements for the past few months, are you being charged monthly fees or transaction fees? If so, contact your financial institution to see if they have a product that meets your needs that doesn’t charge fees or that is more suited to your use of the account. Often financial institutions improve their products and it is up to you to make the most of these improvements. Although you will often receive mailings from your bank or credit union, if you don’t pay attention, you could miss out on something that could benefit you. That’s why it’s important to ask!!!
If you are a student or a senior citizen, check with your financial institution to see if they have products specifically designed for you. Often seniors and students qualify for products without any banking fees. Don’t be passive when it comes to banking. Always look at your statements or better yet, sign up for online banking so you can keep on top of things. Ask for a fee schedule so you are fully aware of the limitations (if there are any) on your account. With a little work on your part, you can minimize (if not eliminate) your banking fees.
If you have considered buying a home but you aren’t sure how much house you can afford, here is a suggestion. 
Choose a financial institution that you trust and have them do a preapproval. It prepares you for when you really are ready to make a serious offer on a home, and many real estate agents ask you to obtain one so they know you are serious about buying. The main thing, though, is that it gives you an idea of how much you can afford given your current circumstances. Consider buying a home that costs $20000.00 to $30000.00 less than what you are preapproved for. The result: You will be less likely to find yourself financially stressed down the road should your circumstances change, and you will save a ton of money that you would otherwise have spent on mortgage interest, not to mention higher property taxes, utilities, and maintenance. Most people don’t regret making the decision to choose a less expensive home and with the economy the way it is right now I don’t think there are too many people saying they wished they had bought bigger homes. If you choose to use a real estate agent to help you find the right home, and you are planning to pay less than your preapproved amount, you can ask your financial institution to mark your preapproval down to a lower amount so that your real estate agent is less likely to try to pressure you to spend more than you would like. This seemed to work well for us. Our real estate agent never knew the amount we really were preapproved for so we felt no pressure from him to pay more than we wanted to.
Recently with the prime rate being so low, my husband and I decided to change our mortgage from a fixed rate to a variable rate. We still had about 3.5 years remaining on our existing mortgage so we were subject to some hefty penalties. I wouldn’t necessarily recommend doing what we did, although we do hope to recover our penalties and at least save some money in the process. However, if you are planning on buying a home in the near future, you may want to consider choosing a variable rate while the rates are low and then you can always fix the rate later when the prime rate goes up. Whatever you decide, don’t rule out the possibility of a variable rate. Statistics indicate that more than 85% of people who have variable rate mortgages save money. When you visit your mortgage lender, be sure to ask about their variable rate mortgage options. It is better to be fully informed of your options in the beginning rather than wish you had later.
Maintaining a high credit score is important if you are planning to use debt to purchase a home or vehicle. 
The higher your score, the better your interest rate will be which will result in significant savings. Below are some tips to follow if you want to boost your credit score.
1. Avoid using a P.O. Box because it makes credit bureaus think that you either lost your home or that you are the victim of identity theft.
2. Shred your financial statements or anything that contains any of your financial information to prevent thieves from stealing your identity.
3. Pay all of your bills on time. If you are late on one vehicle loan or credit card payment your other lenders may jack up your interest rates.
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