Fed cuts rate, what does it mean to me?

Article by Joe Bartolotta, Central Florida's Upfront Mortgage Broker
Posted September 19th, 2007

I was asked today what the Fed's interest rate cut would mean to most people. Below is my answer.

The rate cut should reduce payments on many home-equity lines of credit, credit cards and some car loans. From what I have read, some economists have said it could lead to higher rates on fixed-rate mortgages down the road if bond markets expect the Fed move will spur higher economic growth or inflation.

People with certain types of adjustable-rate mortgages will not see any relief. That's because the rates on their loans are tied to the London interbank offered rate, or Libor, which has jumped sharply above the Fed funds rate because of the continuing credit crunch in the markets. Just fyi, the Libor, which has drifted downward recently, is an interest rate charged by banks for short-term loans to each other.

Here what the reduced Prime Rate means for:

• Homeowners - The rate cut is good news for borrowers with home-equity lines of credit, and savings could show up as soon as the next monthly statement. Borrowers looking for a new fixed-rate home-equity loan could also see lower rates.
• Savers - Savers could soon see lower payouts on their savings accounts, certificates of deposit and money-market mutual funds.
• Credit Cards - Many credit-card customers should soon see some relief. From what I have read, about 85% of all credit cards carry variable rates.

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