The Federal Reserve Lowered Rates Again; How Does That Affect You?

People hear and read about the Federal Reserve (Fed) rate cuts, but don’t often know what this means for their personal finances. Is this the time to buy a new home or refinance your home? Is it a good time to borrow for home repairs or a new car? Should I invest in short or long-term CDs, money market accounts, or leave money in savings? Al Grant, Senior Vice President, Mortgage Origination was recently featured on The Rhode Show to discuss this topic.

How does the change affect consumers?

Good news for borrowers - an interest rate cut is good news for borrowers and could reduce interest cost on future borrowing and possibly current debts.

• Fixed rate loans such as personal and auto load will be lower, but only for new borrowers. Your existing loan rates on fixed loans will not change.
• Variable rate loans such as student loans, Home Equity Lines and credit card rates will be reduced when a rate cut takes place
• Mortgage rates often move in advance of Fed rate changes.

Opposite news for savers – a rate cut will reduce the earnings on safe investments like CDs and savings accounts.

• Savings account, money markets and CD rates will fall after a Fed rate cut
• Riskier investments like real estate and stocks might begin to seem more appealing

A few key points about the rate change:

1. It will make renovating your house more affordable. A Fed rate cut will soon make it less expensive to fix up your home as sellers prepare for next year’s homebuying season. A lower Fed rate reduces the cost of borrowing for a home equity line of credit—a popular way for homeowners to pay for renovations and repairs.
2. Tapping your home equity for larger purchases will be more attractive. Home equity loans will be cheaper. Recently many homeowners took cash-out refinances to pull money out of their homes. A drop in interest rates would make home equity products a more competitive alternative for homeowners looking to tap their equity for large purchases. New borrowers will have cheaper access to credit, and those who already have a home equity line will see lower monthly payments.
3. Your credit card payments may be more affordable. Most credit cards are affected directly by the prime rate, so consumers should begin to see a small impact from this recent rate cut. With the two cuts that took place earlier this year, consumers will have seen an overall decrease in 75 basis points in rate since the summer. This may help you as you are gearing to use your credit card through the holiday season.
4. It could spur more home construction. The rate cut may help offset rising construction costs. Rising construction costs are limiting housing inventory, particularly with first-time homebuyers/starter home builds. With a cut in the rate, the cost of building a home may not be as expensive. (people move up and build and free up entry level homes for first time homebuyers)

For more information, contact one of our Trusted Advisors today at 800-475-2265.