Risk #4: the credit crunch

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By George Mannes, Money Magazine senior writer

After making all those colossally dumb loans, financial institutions are now punishing you for their sins. According to a Federal Reserve survey in January, the percentage of senior loan officers raising standards on traditional mortgages jumped to 53%, up from 41% three months earlier. This marks the biggest shift to caution in at least 17 years.

But it's not just mortgages. It's now harder for you - even if you have good credit - to obtain other types of consumer loans, like an auto loan or a credit card. The news is even worse if you've got a less-than-perfect credit history. There seems to be no end in sight.

As Fed chairman Ben Bernanke told a Senate committee in February, "More-expensive and less available credit seems likely to continue to be a source of restraint on economic growth." Translation: Lenders who would have poured cash all over you a year or two ago will now be focusing on all the reasons they shouldn't. Thanks, guys.

So if you need financing soon - whether for a car or a home - borrow now, before lenders slam the door even tighter and raise rates to boot. True, the Fed cut the benchmark rate on overnight bank loans by two percentage points from January to March, to 2.25%.

But experts polled by Bankrate.com still predict that mortgage rates will rise. The National Association of Home Builders forecasts that average 30-year mortgage rates will climb from 5.9% this year to 6.3% by year-end 2009.

Another reason to make haste: the possibility of recession and job loss. "If you're not employed, you're done," says Chicago-area financial planner Ed Gjertsen II. "You're not going to be able to get credit." So if you've been thinking about refinancing, don't wait.

The best hedge: a HELOC

Also consider a home-equity line of credit now. Yes, banks have gotten antsy about HELOCs that they've extended in the past. But if you've got sufficient equity in your home and a decent credit score, a HELOC can be a safety net that you can set up now - and you won't have to have oodles of cash on hand.

There's huge variation in pricing of HELOCs around the country, says Keith Gumbinger of HSH Associates, but the best deals tend to come from credit unions and smaller lenders. To find the lowest rates in your market, visit Bankrate.com or click on the widget at the right on page one.

A recent search of the site found that in St. Louis, Heartland Bank offered an interest rate of prime minus half a point (translating into 5.5%) with no up-front or annual fees. Find a deal like that in your area and you'll be able to sleep just a little bit easier tonight. To top of page

Send feedback to Money Magazine
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.