The Inevitable Interest Rate Hike
The U.S. Federal Reserve cut short-term interest rates to near 0% in response to the financial crisis of 2008, in order to stimulate the economy by encouraging people to borrow money. Rates have been kept historically low for over 7 years now. Since that time, U.S home prices have clawed their way back and positive data suggests the economy has made a healthy recovery. The economy is “performing well,” Janet Yellen, the Fed chairwoman, said earlier this month, adding that “it could be appropriate” to raise rates at the Fed’s final policy meeting of the year in December.
Taking Advantage of Low Rates
Higher short-term interest rates will mean the cost of borrowing will be higher. Auto loans, credit cards, home equity loans and mortgages will all be affected by the eventual rate increase. For this reason, the window of opportunity to borrow at low interest rates is closing. One of the smartest ways homeowners are taking advantage of low rates is by borrowing to fund home improvement projects. This is a responsible use of debt as many of these projects add value to your home. In addition, a large portion of the costs can be recouped when you sell your home. Projects like a kitchen remodeling can retain up to 92% of the costs of the project according to a cost vs. value study done by Remodeling Magazine. You can even turn a profit on some projects! Doing something as simple as installing a steel entry door can earn you money, with 101% of the cost of the project being returned at resale. Projects like this one are certainly a wise use of debt.
Financing Home Improvements using Alternative Finance
Nearly 57% of U.S. homeowners said that they plan to spend money on home improvement projects according to an annual survey by LightStream, an online alternative lender. How do they plan on paying for these projects? More than half say they will tap savings (59%). However a concerning portion (30%) plan to use credit cards to finance their renovation and home improvement projects. Credit cards often charge very high interest making it a costly option. Luckily other cost effective options exist. Alternative finance has seen explosive growth lately and with that, alternative lending has become a popular way to obtain a loan online. Not only is it one of the quickest ways to find a loan, the interest rates on these loans are far more attractive than other financing options. Before you use credit cards to pay for these costly home improvement projects, it's definitely worth checking out alternative lending and comparing rates. Many alternative lending sites offer online tools that help you compare APRs across multiple financing options. It’s important to note that loans found on these sites will also be sensitive to short-term interest rates and as a result will increase when the Fed decides to raise rates in the near future. Therefore, now is a great opportunity to lock in a cheaper APR on a home improvement loan.
An improving housing market coupled with the likelihood of an increase in interest rates in the near future make now a great time to borrow and take advantage of low interest rates. One of the more responsible uses of debt is to use it to finance home improvements as many of these projects can add resale value to your home. Furthermore, marketplace lending is a simple and cost-effective alternative to finding a home improvement loan before interest rates across the board inevitably increase.
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