That's some of the advice experts are offering as prospects grow that short-term interest rates will rise this year.
Americans are now enjoying some of the lowest interest rates in four decades. But with the economy on the mend from a recession that began last March, Federal Reserve policy-makers could begin to boost rates as early as May or June, many economists said.
"Consumers should not procrastinate if they need to take out a new loan, if they see a house they would like to buy or if they are thinking about refinancing their home," said Lynn Reaser, chief economist at Banc of America Capital Management Inc.
Borrowers will want to take advantage of low interest rates and lock in rates now before they move higher. Savers, however, would be wise to wait for interest rates to move higher before tying up their money in longer-term certificates of deposit or other savings products, experts said.
"If you are a saver, you probably shouldn't lock in these currently low rates. You should wait because you'll get a better rate six months or 12 months down the road," said Mark Zandi, chief economist for Economy.com. "So if you need a CD, lock in a short-term CD at three or six months at the most."
After 11 consecutive rate reductions last year, Fed Chairman Alan Greenspan and his colleagues opted Tuesday to continue to hold the federal funds rate -- the interest that banks charge each other on overnight loans -- at 1.75 percent, the lowest level in 40 years.
The Fed's decision means that commercial banks' prime lending rate, the benchmark for millions of consumer and business loans, will continue at 4.75 percent, a level last seen in November 1965.
But the Fed put the country on notice Tuesday to expect rate increases sooner rather than later. Policy-makers noted that recent economic data suggested the economy was "expanding at a significant pace."
Because of that, the Fed changed the wording of the portion of its statement that signals possible future activity away from one that tilted toward misgivings about economic weakness.
The Fed now sees an equal balance in future risks between economic weakness and inflation. Economists viewed that change as the Fed's first step toward rate increases as the economic recovery gains momentum.
Some economists are forecasting the federal funds rate will rise to around 3 percent and the prime to around 6 percent by the end of this year. Such rates still would allow the economy to grow and would remain favorable to many borrowers, they said.
Still, "to the extent that people can get promotional interest rate reductions, such as zero-percent financing on cars and other things, they should grab them because my guess is that six to 12 months from now they will be gone," said Stephen Cecchetti, economics professor at Ohio State University.
For the past two weeks, mortgage rates, tracked in a nationwide survey by Freddie Mac, have moved up amid increasing evidence that the economy is rebounding.
The average interest rate on 30-year fixed-rate mortgages rose to 7.08 percent last week. Economists are forecasting these rates will rise to a high of 7.5 percent by year's end.
While that might make it impossible for some to buy a home, many would still find it affordable, economists said.
The Fed's rate decisions affect mortgage rates in setting the levels of one-year adjustable rate mortgages and indirectly through the Fed's influence on longer-term rates that bond markets set.
"Mortgage rates aren't going to skyrocket," said Richard Yamarone, economist with Argus Research Corp.
In early November, rates on 30-year mortgages dropped to 6.45 percent, the lowest point since Freddie Mac began conducting its survey in 1971. Low mortgage rates fueled a record $1.1 trillion in home refinancing last year.
Paul Kasriel, chief economist at Northern Trust Co., meanwhile, worries that rising interest rates could make it difficult for highly leveraged consumers and businesses to make monthly payments on their debt. "I still wonder ... if that is an Achilles' heel, if you will, to the sustainability of the recovery," he said.
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On the Net:
Federal Reserve: http://www.federalreserve.gov
http://accesswdun.com/article/2002/3/197185