Credit Crisis Waning?

I read an article in the Wall Street Journal today about a possibility that the credit crisis is softening, although it is not completely over. What does this mean for the average American? In the interest of simplifying things as my blog intends to do, I offer my take on the recent events in the credit markets.

U.S. Treasury Secretary Henry Paulson was quoted in the Wall Street Journal as thinking things may be improving, stating "There's no doubt that things feel better today, by a lot, than they did in March". He may be right; from an average consumer standpoint, the Federal Reserve Board lowering rates by more than 3 percentage points since last year gives him/her the advantage of borrowing at lower rates. However, I for one wonder if lower rates are always good for the economy.

Now don't misunderstand me, lower rates for borrowing certainly keep markets liquid; in other words, money continues to flow like a river uninhibited by any diversions. But I would caution anyone from borrowing large sums, say for a house, in the current credit environment for the sole purpose of lowering interest costs. While it is generally a good idea to pay as little interest as possible, if you don't already have a mortgage, I think you need another reason to get one besides the fact rates have fallen.

Has the real estate market bottomed out in your area?

Are you able to still save for you retirement?

Do you have sufficient savings if you lose your job and can't return to work for 6 months?

Do you have disability insurance if you're hurt and can't return to work?

You must ask yourselves these questions my friends. Once you have comfortable answers to these questions, borrow at the lower rates, or refinance. Just make sure if you plan to refinance, that you refinance for the remaining term of your current mortgage. Don't fall in to the trap of extending your mortgage another 30 years for a lower payment that will cost you dearly in the long run. See my post on Compound Interest Overview last week for an explanation on the cost of borrowing. (Exception: you take the savings from the lower interest cost and invest/save the money!)

Just trying to make "cents" of the financial world!