Consumers facing high asset prices and rising interest rates have a few loan options. None are particularly attractive.
Buyers of homes or new cars might be better off waiting. But if you must go ahead, either face taking on a big monthly payment, or stretching out the loan term to keep the monthly bill down - as many are doing.
"More and more dealers are offering extended loan terms: Instead of three or four or five years, they are now going way beyond that," Rheingold added. "It's the same thing with housing: Sometimes the only way to get someone into a house is to increase the mortgage length."Homeowners straining to pay their Federal Housing Administration mortgages can now apply to have their loans extended to 40 years to reduce monthly payments.
One principle applies, no matter what the asset, Rheingold advised. "Be very wary of extending the life of your loan, just to make it affordable in the short-term."A lower monthly payment may seem attractive now, but a longer term loan will end up costing more in interest, likely at a higher rate to compensate the lender for additional risk. That is why such loans appeal to banks, but less to borrowers.
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