mortgage

How Fed policy affects your pocketbook

Highlights
  • The Federal Reserve's rate policies affect consumer loans.
  • In some cases the impact is indirect.
  • Knowing other factors affecting rates can save you money.

ProductDirectionChartCommentary
Mortgages
 
30-year fixed mortgage rates chartChanges in the Fed's monetary policy have a heavy influence on fixed-rate mortgages ... Mortgages
Changes in the Fed's monetary policy have a heavy influence on fixed-rate mortgages, although the impact is somewhat indirect. The federal funds rate set by the Fed affects lenders' borrowing costs. When the key interest rate is cut, for instance, lenders pay less for the money they use to finance loans. Therefore, they can reduce the interest rates they charge for mortgages. Of course, market conditions and competition can also affect rates.
Auto loans
 
60-month new auto loan rates chartBecause auto loans are fixed-rate, medium-term loans and the federal funds rate chiefly governs short-term interest rates ... Auto loans
Because auto loans are fixed-rate, medium-term loans and the federal funds rate chiefly governs short-term interest rates, the Fed's decision to leave rates unchanged won't have a direct effect on auto loan rates. That said, the federal funds rate weighs heavily on the overall interest-rate environment, and that environment is producing record-low rates for new-car and used-car loans.
Certificates of deposit
 
5-year CD yields chartFor the most part, CD rates follow short-term interest rate movements from the Federal Open Market Committee ... CDs
For the most part, CD rates follow short-term interest rate movements from the Federal Open Market Committee. When the federal funds rate is raised, CD rates go up. However, other factors can influence rates on longer-term CDs, most notably the yields on Treasury securities.
Home equity
 
30K HELOC rates chartA popular form of second mortgage, the home equity line of credit, or HELOC, is directly affected by changes in the federal funds rate ... 30k HELOC
A popular form of second mortgage, the home equity line of credit, or HELOC, is directly affected by changes in the federal funds rate. That's because HELOCs are variable-rate loans. Their rate is often tied to the prime rate, which itself rises and falls with the federal funds rate. Any changes made by the Fed on its key lending rate will immediately reflect on the prime rate and HELOCs follow suit.
Credit cards
 
Variable rate credit cards chartMost credit cards have variable interest rates tied to an index, which is usually the prime rate ... Credit cards
Most credit cards have variable interest rates tied to an index, which is usually the prime rate. The prime rate stays 3 percentage points above the federal funds rate, so when the latter moves, variable credit card rates can shift with it. Of course, the APR on an existing account can increase for other reasons, such as delinquency or the expiration of an introductory rate.

 

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