Catch the Rates!
Although interest rates have begun to rise, they are still the lowest they’ve been in nearly 50 years. That represents a golden opportunity for those who know how to take advantage.

By Russell Wild

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Interest rates have climbed a bit in the past few months, but they are still so low that you practically need a magnifying glass to read the "interest paid" column on your savings account passbook. Even CD rates are so small that you've got to squint to see any investment returns. For retirees who depend on income from the bank to pay the rent, such low interest rates-the lowest in many decades-offer scant reason to rejoice. Yet, for some of us, those rates can be like a gift from heaven.

The angels of finance, however, tell us that interest rates won't stay down forever. So now is the time to take maximum advantage. Here are some ways to do exactly that:

Ply your plastic  
If you're carrying any credit card debt, whatever rate you're paying-even one or two percent-is too high! Credit companies are hungry right now and they're stuffing mailboxes with zero-percent introductory offers.

The deal: Transfer your balance from another card company, and you'll spend nothing on interest for six months, a year, or in some cases, forever. "The cost to the credit card companies to borrow, over the last few months, has been so incredibly low that they can actually lend you money at zero percent and still profit by collecting fees from merchants," explains Leisa Brown Aiken, CFPT, CPA, a financial planner with Trinity Financial Advisors in Chicago.

Aiken, who studied economics at the Universidad Católica de Chile, urges her clients to take advantage of whatever zero-percent offers come their way, but to be very careful, because those deals always come with one or more catches.

Don’t be seduced into buying stuff you don’t need just to take advantage of zero-percent financing

The most common catch is that if you don't pay off the debt or shift it to another card company before the zero-percent rate ends, you'll wind up paying an exorbitant interest rate. "Card companies count on your forgetting to pay the balance off in time," says Aiken. "And you know what? Many people do forget."

Another catch? Those zero-percent offers usually apply only to the transferred balance, not to new purchases. If you take advantage of such a balance-transfer offer, take that credit card out of your wallet. While the zero-percent offer is in effect, don't use that card for anything but balance transfers or you could end up paying interest rates of 20 percent or higher on those purchases. And make one late payment and the zero-percent rate automatically bounces up to a high interest rate.

Last catch: Some credit card companies waive the balance-transfer fee (typically 3 percent with a maximum of $75 per transfer) but some don't. So read the fine print before transferring any balances, and note on your calendar when the zero-percent rate is due to expire.

Refinance your mortgage? Maybe
If you haven't looked lately, 30-year fixed mortgages can be had for a song, and 15-year mortgages and adjustable-rate mortgages (ARMs) can be had for less than a song. As a general rule, if you can recoup any out-of-pocket costs within one to two years and keep the same payoff time (say 15 years), then it may make sense to refinance.

But be careful! It's a jungle out there, warns Robert Bubnovich, president of Rio Financial Advisors in Irvine, California. Bubnovich, who has lived and worked in South America and Spain, says that the number of ways in which banks can make a bad deal look like a good deal is nothing less than astounding. Note, for example, the crucial words above: the same payoff time. The time factor must be worked into your decision on whether to refinance. Don't let any pinstriped fast-talker convince you otherwise. If you start a new term, (say going from a present 10-year payoff to a 20-year payoff), then any savings up front-no matter how big-may be for nought, because the amount you pay over the long run is what really matters. The last thing you want to do is to add years to your mortgage so that you wind up continuing to make monthly payments when you can least afford them.

Be careful also of an especially nasty clause present in many mortgage deals: the prepayment penalty. "Don't ever allow yourself to get stuck with a prepayment penalty," says Bubnovich. "You might need to move at some point, and you'll have to sell the house and pay off the mortgage." At that point-swoosh-that great deal you got in 2003 goes down the toilet because you must suddenly lay out a large sum of cash.

Many other tips on shopping for mortgages are available, in Spanish as well as English, from the Federal National Mortgage Association, otherwise known as Fannie Mae. Call 800-732-6643 for information or visit the Fannie Mae website (English only). Do your homework before you sign!

Cash out to wipe your credit clean  
If you're going to go through the trouble of shopping for a new mortgage anyway, you might want to consider going for what's called a cash-out. In other words, you apply for more money than you need to actually pay off your old mortgage. (Most mortgage companies will front you about 75 percent of the value of your home.)

What do you do with that excess cash? Pay off any other outstanding debts you have. "Mortgages, because they are secured loans, are often the cheapest loans you can get, especially when you figure in the sweet tax deduction you get on any interest payments," says Ricardo Ulivi, Ph.D., owner of Ulivi Wealth Management in Orange, California, and a professor of finance at California State University. "You can often save yourself a bundle, by paying down any other debt with a mortgage cash-out."

Consider a little place back home  
A second possible use of the cash-out may be of special interest to our readers. "Many of us who were born in different countries dream of someday getting a little place back in the old country," says Ulivi, himself born and raised in Argentina. "Just try to get a loan in many Latin American countries! If loans are available at all, you'll likely pay a very steep interest rate." (In Mexico, for example, mortgage rates are now averaging about 300 percent of what you'd pay north of the Rio Grande.) For a homeowner living in the United States, there's no reason whatever to deal with foreign banks charging exorbitant interest rates. "Get a mortgage with a cash-out here in the U.S. Then use the extra money to buy your dream house south of the border," says Ulivi. "There's no question that that's the way to go."

Stop and shop  
Need a new refrigerator, washing machine, computer, or car? Retailers in your town may be offering zero-percent financing, or close to it, in the hope of snagging your business. So if you need-truly need-a new major appliance or any big-ticket item, now is a great time to purchase. But don't be seduced into buying stuff you don't need just to take advantage of zero-percent financing. Remember that zero-percent financing allows you to postpone paying-it doesn't mean that your purchases are free!

Also, keep the whole financing issue in perspective. Sure, it's sweet to get a zero-percent loan. But you also want a quality product, a good price, a warranty, and, in the case of a car, you want all of the above plus some assurance that fueling, maintenance, and insurance won't drive you broke. So do the research. The Internet has plenty of tips on smart auto shopping on websites such as www.kbb.com and www.autobytel.com.

Consolidate college loans  
If anyone in your family is carrying student loans, now may be a great time to save a bundle. Best strategy: Get rid of all your family's current education loans, and create one new loan with a super-low interest rate. You could do it through any private lender, but you may be faced with a fee, and other assorted nastiness such as a prepayment penalty. Fortunately, the U.S. Department of Education offers a fee-free, penalty-free alternative through its Direct Loan Consolidation Department. The website is all in English, but the department's toll-free hotline, 888-758-9730, offers bilingual help for the asking.

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Now, learn about credit, find out about building a nest egg, and then learn 9 tips to get your finances back on track.

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