Recession Watch: What if you need a loan?

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While a recession creates many economic woes, those who are in the market for a loan (mortgage or otherwise) can often find value during these times. Here are a few suggestions for taking advantage of opportunities and hedging your bets.

Rates are low. In an effort to calm recession fears and boost the economy, interest rates have been lowered again. That's good news for borrowers, who can find better bargains than in the recent past.

Refinance your house.
With lower rates, you may have an opportunity to refinance your house and save some money. If you currently have an adjustable rate mortgage that resets in the next year or two, you might consider refinancing early to lock in a good rate. Waiting another year or two to see where rates end up might not be the smartest move if you qualify for a competitive rate now.

Use home equity to help. If you were planning on borrowing money to attend school, start a business, or to fund some other long-term worthwhile venture, you may consider tapping into your home equity. While it might be harder to get an ordinary personal loan, it is probably a little easier to dip into home equity. Please do so responsibly though, as you don't want to lose your house because of a failed business venture.

Beware using home equity to pay off credit cards. Tapping into home equity to ease the burden of credit card debt can be a financially savvy move, but you've got to be careful. Using home equity can lower your interest rate, and the interest is often tax deductible. However, if you do this, you're swapping unsecured debt for secured debt. You've just pledged your house as security on that debt, and if you don't pay, your home can be in jeopardy. Don't roll credit card debts into home equity loans without thinking very carefully about it first.

Put off major purchases. If all else fails, consider putting off your major purchase until the economy rebounds and your financial situation is a bit more secure. New appliances, home remodeling, and a better vehicle might be things you can do without for now. It's better to be a little more cautious than to over-extend yourself when your finances are in flux.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud. This post is part of a series offering consumers advice on what to do during a recession.

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