Don’t get caught in a vicious circle:
Refinance away from consumer credit rates that are rising with the Prime Rate !

As the economy improves, the prime rate will continue to rise. The prime is the basis for bank credit, and affects mortgage rates, bank account rates and other interest rates.

Perhaps the most dramatic effect is on consumer credit rates for credit cards and home equity lines of credit. Especially with credit card rates, even the rate you thought was fixed can increase. Remember that fine print you skimmed to get that low introductory rate? It’s all in there. With home equity lines of credit tied to the prime, a rising prime means rising rates.

It’s truly a vicious circle. As your interest rate increases, so does the amount of interest that you have to pay on your debt, and thus, so does your overall debt. To head off this pattern, borrowers are advised to pay off credit cards and home equity lines of credit by cashing out equity and getting a low rate, fixed mortgage. Your mortgage rate is fixed or in the case of an Adjustable Rate Mortgage, the rate of increase is controlled. This means that most mortgage rates are more stable and desirable than fickle credit card and home equity line of credit rates.

What is the definition of the Prime Rate anyway? The prime interest rate is the rate charged by commercial financial institutions for short-term loans to corporations or individuals whose credit standing is high enough that little risk to the lender is involved in making the loan. This rate fluctuates based on economic conditions and may be different among financial institutions. The prime rate serves as a basis for the interest rates charged for other higher-risk loans. In short the prime rate is the base rate that banks start with for determining rates for loans, credit cards and bank accounts.

And what’s the rate right now? The rate is 4.75% right now, but it started the year at 4%. In fact, it was at 4% from July of 2003 until July of 2004, so the recent shift is a clear indicator of economic changes. In the last ten years, it’s been as high as 9%, but in 1980, it went all the way to 21.5%! As a base rate! Eek!

What does the prime rate have to do with my credit card? Last time the prime rate moved dramatically upward, as it’s doing this year, average credit card rates rose over 3 percentage points! Though the prime rate shift was only 1 percentage point, from 8% to 9% it made a huge impact on credit card rates. According to analyst Greg McBride, during 1999 and 2000, the average fixed-rate APR went from 13.14 percent to 16.66 percent in just one year.

But my credit card rate is fixed! Not necessarily. Even fixed credit card rates are subject to change. The credit card agreement you thought you had can morph before your eyes into something completely different. If you’re late on a payment or your credit score changes, that fine print can allow the bank to change your terms. Merely using the card can sometimes qualify as an opt-in, depending on your original agreement. And, even if you play by the rules, your renewal rate is likely much higher than your original rate.

Won’t the Prime Rate increase affect my mortgage, too? Eventually, the Prime Rate increase will change mortgage rates for new borrowers. But, if you act now, you can get in on a low 30 year fixed rate, which will be valid for…well, 30 years! Housing is still an important part of the nation’s economic recovery. Credit card rates are expected to rise much more dramatically than housing.

So…what should I do?
Refinance your house with Bauer Mortgage, pay off existing credit card debt and roll over that debt into a mortgage payment. The interest rate is less than HALF of what you pay the credit card companies! And by the way, the interest that you pay on your mortgage is a tax deduction, whereas with credit cards...it's just money out the door. Look carefully at how you use revolving credit and consider how the prime rate changes will affect your future financial life.

Do the math or give us all the numbers and we’ll help you do the math. You can save hundreds each month and stop accruing interest on old credit card and home equity line of credit debt.

Contact Bauer Mortgage today for a no-hassle, no-pressure conversation about how you can save money by getting rid of your rising-interest rate loans!

Please email us or call anytime at 603-430-7729.