Consumer yielding is one of the indicators that a recession is underway. Consumer yielding is the rate at which lenders lend money to consumers. Consistently, lending rates have been going down as consumer confidence has risen. The rise, however, included a nearly $3.97 billion rise in mortgage lending, the largest increase since February.
This measure of consumer borrowing has been going up since the fall. It follows that, if rates continue to drop, consumer credit will be going up. The rise included a $5.2 billion rise in mortgage lending, the largest increase since May 1996. This category includes mortgages, home equity lines of credit (HELOCs), and personal loans.
Mortgage rates are falling in this tightening cycle. Total consumer credit offered to borrowers has risen significantly since the early spring. Mortgage rates have dropped 4.5% in the past twelve months, according to estimates from the FOMB. While most people focus on the rising mortgage rates, they must also notice that they are also seeing declines in student loans and in student and other nonrevolving credit cards.
Inconsistency in these indicators can be confusing, especially to those who have seen a six or seven-year rise in rates and are experiencing a ten or fifteen-percent drop. Most experts would agree that the economy has slowed considerably over the past year, particularly in the business and services categories. Lenders will likely see a continuing decline in the number of applications they receive. This is a good time to start considering the pros and cons of consolidating debt to take on more credit.
One of the reasons why Consumer borrowing has increased since late spring is the result of an unusually large number of individuals that do not have student loans or credit card use. The number of adults who are unemployed and do not work is also an increasing factor. Another reason why interest rates are dropping is the fact that lenders are raising their lending standards for lending money. In order to remain competitive, lenders are raising the interest rate on all loan products. To keep current rates, many households must increase their debt-to-income ratio and begin or further extend credit to their spouse or other relatives.
How does the above scenario play out in your situation? If you currently have an interest rate which is higher than the national average or if your monthly report shows that you have not made any significant progress on paying down your balance, you may want to consider consolidation as a means of lowering your monthly payments while possibly reducing the amount of credit card debt you have. Consolidation allows you to obtain lower overall interest rates while spreading out the amount of credit card debt you have. It also provides a more affordable monthly payment for your family. If your income remains the same or increases, you can consider whether you can extend the period of time you need to pay off your loan and ask for a more affordable monthly payment. You should also consider whether or not the lower interest rates you enjoy will negate the extra money you would spend on credit cards.
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