Duchess Jack Posted January 22, 2008 Share Posted January 22, 2008 with the economy on its way into the crapper... I was wondering what exactly the cutting back of interest rates means? does that mean I can refinance my mortgage from 5.5 to.... what is it... 3.5? If not, how does that interest rate apply? If it is something I can do.... how much does something like that usually cost? sorry... I am a newb at this stuff Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted January 22, 2008 Share Posted January 22, 2008 The Fed lowered its federal funds rate, which impacts how much consumers pay on credit card debt, home equity lines of credit and auto loans, to 3.5 percent from 4.25 percent. The Fed also lowered its discount rate, which is what it costs banks to borrow directly from the central bank, by three-quarters of a point, to 4 percent. the 3.5 (fed funds) is a rate at which banks lend money to each other, usually overnight. it impacts other rates (like your mortgage, credit cards, etc.) but not directly. basically it gets money into the economy by making it less advantageous to have money socked away on the sidelines. Quote Link to comment Share on other sites More sharing options...
Duchess Jack Posted January 22, 2008 Author Share Posted January 22, 2008 Thanks, Az. Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted January 22, 2008 Share Posted January 22, 2008 the 3.5 (fed funds) is a rate at which banks lend money to each other, usually overnight. it impacts other rates (like your mortgage, credit cards, etc.) but not directly. basically it gets money into the economy by making it less advantageous to have money socked away on the sidelines. Any predictions on where mortgage rates might end up? I see a hugh wave of re-fis, even for those of us at low locked in rates already. Quote Link to comment Share on other sites More sharing options...
i_am_the_swammi Posted January 22, 2008 Share Posted January 22, 2008 Many consumer loans are tied to the Prime Rate, which dropped from 7.25 to 6.50 on the Fed Funds rate decrease. These loans (mortgages, home equity loans, car loans, credit cards) are where the average joe will see some relief in their monthly expenditures. Commercial banks responded to the Fed's action on the funds rate by announcing similar cuts of three-quarter of a percent on its prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25 percent down to 6.50 percent. To put it in terms of real value, for every $100K of debt you may have, your yearly interest nut drops from $7,250 to $6,500 (assuming here your loan is at Prime). Thus, it quates to about a $750 yearly savings, or approx. $60 per month. Doesn't sound like much, but if you have a $400K home, and can reduce you payment $240 month over the life of the loan in interest savings by reducing your rate 75 basis points, its something to consider. However, many pundits feel more cuts are on the way, so it may be prudent to sit tight for another 3-6 months before pulling the trigger on a major first-mortgage refi. In the meantime, what you may want to do is take out a small low-fee home equity loan at a great rate, which you then should use to wipe out any higher-rated auto/credit card loans. Then, when its time to refi your 1st mortgage at a rock-bottom rate, roll your home equity balance into it. Quote Link to comment Share on other sites More sharing options...
Duchess Jack Posted January 22, 2008 Author Share Posted January 22, 2008 Thanks Swami... dang, I love the huddle. Quote Link to comment Share on other sites More sharing options...
NSab Posted January 22, 2008 Share Posted January 22, 2008 I love this stuff. Thanks Quote Link to comment Share on other sites More sharing options...
billay Posted January 22, 2008 Share Posted January 22, 2008 Many consumer loans are tied to the Prime Rate, which dropped from 7.25 to 6.50 on the Fed Funds rate decrease. These loans (mortgages, home equity loans, car loans, credit cards) are where the average joe will see some relief in their monthly expenditures. Commercial banks responded to the Fed's action on the funds rate by announcing similar cuts of three-quarter of a percent on its prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25 percent down to 6.50 percent. To put it in terms of real value, for every $100K of debt you may have, your yearly interest nut drops from $7,250 to $6,500 (assuming here your loan is at Prime). Thus, it quates to about a $750 yearly savings, or approx. $60 per month. Doesn't sound like much, but if you have a $400K home, and can reduce you payment $240 month over the life of the loan in interest savings by reducing your rate 75 basis points, its something to consider. However, many pundits feel more cuts are on the way, so it may be prudent to sit tight for another 3-6 months before pulling the trigger on a major first-mortgage refi. In the meantime, what you may want to do is take out a small low-fee home equity loan at a great rate, which you then should use to wipe out any higher-rated auto/credit card loans. Then, when its time to refi your 1st mortgage at a rock-bottom rate, roll your home equity balance into it. Hey Swammi, where might the average joe find this kind of info on a daily basis? Quote Link to comment Share on other sites More sharing options...
isleseeya Posted January 22, 2008 Share Posted January 22, 2008 Hey Swammi, where might the average joe find this kind of info on a daily basis? PM the swammi each day and he will provide seriously this is good info and would not mind knowing either Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted January 22, 2008 Share Posted January 22, 2008 Dow down 150 points so far. Quote Link to comment Share on other sites More sharing options...
billay Posted January 22, 2008 Share Posted January 22, 2008 Dow down 150 points so far. That's quite a recovery. It was down over 400 just after opening this morning. Quote Link to comment Share on other sites More sharing options...
MrTed46 Posted January 22, 2008 Share Posted January 22, 2008 That's quite a recovery. It was down over 400 just after opening this morning. I saw reports saying it was down over 500 before opening Quote Link to comment Share on other sites More sharing options...
T-Scorp Posted January 22, 2008 Share Posted January 22, 2008 The relief in payments will be for those who have rates directly tied to the prime rate. Other rates that are tied to other indexes such as LIBOR or US Treasuries have already been dropping as the the market was prediciting a .50 drop when the Fed was to meet next week. Fixed mortgage rates have been dropping all year and will not drop .75 based on todays cut. They will continue to trickle down so you may want to wait a couple weeks to see what happens. Basically, if you find a rate you like take it. It is extremely hard to time the market. Commercial loan rates has dropped significantly over the last 45 days so if you have a fixed rate on a commercial loan contact your lender to see if you can refinance. This may be easier than you think as the bank may be able to increase their margin (interest rate minus bank's cost of funds) while lowerng your rate which is a win/win for both. Quote Link to comment Share on other sites More sharing options...
i_am_the_swammi Posted January 22, 2008 Share Posted January 22, 2008 Bankrate.com....though not updated daily. Primerate.com....updated at the end of every day These will help you keep track of some of the basic rates. I would also guess your lending institution (Wachovia, BOA, etc.) would have this info available to you through their website for those looking for loan rates. Quote Link to comment Share on other sites More sharing options...
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