does a fed rate cut mean to me?
Rate Cuts - Your Best Moves
The Federal reserve left Interest rates untouched
March 2003. In an announcement at about 2:15 p.m.
ET, officials announced that if needed it would lean
toward cuts in the future.
The fact that Federal Open Market Committee decided
to keep its target for the federal funds unchanged
indicates it believes the economy is working its way
through its current soft spot.
after the Fed jolted the financial markets November
2002 with an aggressive half-percentage point rate
cut designed to kick-start the stalled U.S. economy,
the federal funds target rate is currently at 1.25
It was predicted that the economy will recover on
its own by mid-2003. Much has to do with the impact
of the impending Iraq war, the direction of the jobless
rate, consumer confidence and other economic factors.
With the concern now being over new job losses the
Fed has more reason to consider cutting rates compared
to earlier this year.
How will current conditions
influence your finances and what are your best moves?
First a quick explanation of rates.
The overnight rate influences
the prime rate. Consumer debt tied into the prime
rate are variable-rate credit cards, car loans and
home equity lines of credit. How will the rate cuts
impact your money? How can you take advantage
of lower rates?
Short Term Impact
A rate cut is designed to stimulate the economy by
making it cheaper to borrow money. The Feds
half point reduction in key short-term rates will
probably immediately fuel a stock market rally which
may very well hurt bond prices and push mortgage rates
Long Term Impact
The Fed's most recent rate slicing actions were
aimed at spurring consumer confidence and encouraging
more spending. Debt consolidaiton and debt management
programs as well as major product financing such as
car loans and home loans did increase. Still it takes
12 to 18 months before a rate cut impacts the economy
for the better.
In time the prime rate would
drop to 4.25 percent. When this happened consumers
could expect for rates on some home equity loans and
home equity lines of credit to drop. Rates on some
variable-rate credit cards would drop as well.
A rate cut at
the right time can provide a boost of confidence as
consumers take advantage of more attractive fixed financing
rates and seek ways to save money over the long term
by refinancing home loans, car and student loans as
well as consolidating credit card debt. The money saved
will inevitably lead to increased spending as the Fall
holiday shopping season gets underway.
If you have an adjustable rate loan or credit card anticipate
a drop in rates in the weeks following a rate cut. Fixed
rates are not affected. However if you opt for a 15
or 30 year fixed rate loan program you're still in for
savings of up to thousands of dollars over a rate that's
just .50% higher. Considering that today's rates are
at historic lows, a less risky approach to getting
a good deal on a rate is to apply for rate quotes at
lending marketplaces now. Have lenders compete
for your business and negotiate your best rate with
such programs as adjustable rates mortgage to take advantage
of future rate cuts.. Protect your current or
future desired rate with rate re-lock-ins or long term
rate locks that allow for rate locks of 30-60 days or
more. A great place to start is at LoanWeb.com.
Rate Shopping Marketplace - LoanWeb
Shop the lowest rates available from several hundred
lenders many in your area offering the most competitive
rates and fees. LoanWeb's lending marketplace allow
you to shop the lowest rates on the web with up
to 50% savings on loan costs.. LoanWeb.com
How Rate Cuts Impacts Your
Consumers seeking ways to save money are eyeing the
fed interest rate, the prime rate and impacted mortgage
rates levels with good reason. Take for example consumer
loans that are tied to the prime rate. Banks offering
lines of credit that are tied to the prime rate anticipate
a reduction in interest. This is a good thing for
the individual seeking to make a large purchase such
as a car or home. Even a half point reduction can
make a difference by lessening the burden of a credit-card
balance and, even better, reduce interest costs on
an adjustable-rate mortgage.
adjustable-rate mortgages soon feel the positive effects
of a rate drop. These mortgages are reset every 12 months,
according short-term interest rate levels. So people
with adjustable- rate mortgages will see a noticeable
change in their payments within six month or so after
a rate drop.
Has the consecutive drops since
May 2002 increased consumer buying trends? Yes and
yes. Mortgage Loan Search,
a lending referral service and loan program search
engine at http://www.mortgageloansearch.cc has seen
a dramatic increase in consumer interest rate shopping
and online financial research. "Site visitors are
using the online calculation tools and snapping up
free mortgage rate quote offers like mad. Visits have
more than doubled." Says a Mortgage loan Search representative.
Car dealers see
significant savings for potential buyers as well. For
instance on a $20,000 car loan, a half-point interest
rate reduction makes a $4.50 to $5.50 difference per
month. Seem small? With just another half point drop
savings are roughly $20 per month on that $20,000 loan.
On a fixed budget this can make the difference between
getting or not getting that car of your dreams.
One will also see a reduction
in home equity loan rates by several hundred million
dollars as well as the credit-card obligation nationwide
by about $500 million per year. In many ways a steady
rate drop spells relief for those seeking to improve
the quality of life in the here and now. Long term
benefits are hopeful. To best take advantage of lower
rates fixed-rate mortgages have been the popular choice
of home buyers.
Some loan programs
allow for a conversion from an ARM to a fixed rate loan.
Although the Fed rate stay means lower rates in principle
one does well to shop for the lowest rates possible.
Loan Search at http://www.mortgageloansearch.cc
offers information on effective rate shopping for bargain
Take advantage of free quotes, calculation tools and
financial resources such as the "resource guide" at
LoanWeb. To start shopping for rates go to LoanWeb for low interest rate shopping. Click
on the Resource buttons for more information on lowering
rates and financing options. LoanWeb Find The Lowest Rates On The Web.
Check back daily for more MLS
Financial News Updates.
For more information on what consumers in the financial
industry are doing go to Mortgage Loan Search
Author: Mark Askew
Editor for the Mortgage Loan Search Network, the MLS
Rate Watch Program Newsletter and a host of e-business