Mortgages

When the Federal Reserve meets, we all have questions: What does it mean to me? Will my mortgage rate go up or down? Is this a good time to refinance? Bankrate is here to help. We’ve looked at five categories — mortgages, home equity loans, auto loans, credit cards and certificates of deposit — to determine if the Fed’s moves made you a winner or a loser. Here’s a look at mortgages:

Winner: Homeowners with adjustable-rate mortgages?

The Federal Reserve’s half-point emergency rate cut may not have any affect on mortgage holders. Changes in the federal funds rate do not directly influence the direction of mortgage rates.

However, Fed rate cuts may have more indirect impacts on some mortgage rates, particularly those associated with adjustable-rate mortgages.

Many ARMs are closely pegged to the London Interbank Offered Rate, more commonly known as LIBOR. When the Fed cuts the federal funds rate, LIBOR rates usually decline correspondingly.

During times of financial stress — such as we are experiencing now — this relationship often breaks down, and the spread between the federal funds rate and LIBOR actually tends to widen.

If that trend reverses — and LIBOR rates drop back closer to the federal funds rate — the Fed’s latest rate cut would be a boon to many homeowners with ARMs. Homeowners with these mortgages could expect to see their monthly mortgage payment decline the next time it resets.

Loser: Consumers looking for instant discounts on fixed-rate mortgages

Cuts in the federal funds rate do not directly impact fixed-rate mortgages. So if you’re shopping for a fixed-rate mortgage, don’t expect the Federal Reserve’s surprise rate cut to send mortgage rates lower.

They may fall. Then again, they may rise.

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The Federal Reserve’s emergency rate cut will not directly impact mortgage rates. Fed actions change the federal funds rate, which is not directly correlated to mortgage rates.

As a result, consumers should not make decisions about their mortgages based on the hope that the Fed’s latest emergency rate cut will send mortgage costs plummeting. Mortgage rates often rise after a Fed rate cut. But they could fall just as easily.

— Chris Kissell

Home equity

When the Federal Reserve meets, we all have questions: What does it mean to me? Will my HELOC rate go up or down? Bankrate is here to help. We’ve looked at five categories — mortgages, home equity loans, auto loans, credit cards and certificates of deposit — to determine if the Fed’s moves made you a winner or a loser. Here’s a look at home equity loans and lines of credit:

Winner: Borrowers with existing home equity lines of credit

After leaving the federal funds rate unchanged for months, the Federal Reserve made an abrupt about-face with an emergency half-point quarter-point rate cut.

The surprise rate cut was made in coordination with other central banks across the world, including the Bank of England, the European Central Bank and banks in Canada, Sweden and Switzerland.

Rates on home equity lines of credit typically are tied to the prime rate, which moves in tandem with the federal funds rate.

So, the latest Fed rate cut means homeowners with home equity lines of credit will enjoy even lower borrowing costs — as long as their lenders haven’t frozen access to equity lines.

That makes HELOC borrowers winners — even if (like many Americans) they haven’t felt like financial winners recently.

As credit conditions tighten and home values continue to fall, few lenders are in the mood to issue new HELOCs. If you are shopping for a new HELOC, you will probably have a tough time finding a lender willing to help you out.

People shopping for home equity loans are likely to run into the same roadblocks as those seeking HELOCs. To make matters worse, loan rates have been climbing for months and are now more than 35 basis points higher than their 2008 lows.

Home equity products are often a great way to borrow, because the interest is tax-deductible.

The Federal Reserve’s surprise decision to cut the federal funds rate means borrowing costs on home equity lines of credit will sink even lower.

Federal Reserve actions do not directly affect home equity loan rates, which have been climbing in recent months.

Opening a HELOC or taking out a home equity loan may be your best bet for borrowing -– if you can find an institution willing to lend to you.

— Chris Kissell

Auto loans

When the Federal Reserve meets, we all have questions: What does it mean to me? Will I be able to get a cheaper car loan when I replace my clunker? Bankrate is here to help. We’ve looked at five categories — mortgages, home equity loans, auto loans, credit cards and certificates of deposit — to determine if the Fed’s moves made you a winner or a loser. Here’s a look at auto loans:

Winner: Auto loan shoppers

Some prognosticators predicted an increase in the federal funds rate by the year’s end. Today’s surprise 50 basis point cut to the federal funds rate, in addition to the veritable tsunami of bad financial news, has substantially reduced the likelihood of that happening.

Auto loan shoppers shouldn’t expect too much help in the interest rate department from this move by the Federal Open Market Committee.

“If we were in a normal environment I would say that you could probably look for some reduction in auto lending rates because that is an input to the cost of funds for institutions, but we’re not in a normal environment,” says Randy Ellspermann, chief financial officer at FirstAgain.com.

There is a lot of concern with liquidity in banks and banks may be trying to cut lending because they are trying to conserve liquidity, he says.

Greg McBride, senior financial analyst at Bankrate.com, agrees with the fact that auto loan interest rates will be mostly unaffected by the Fed move. “There won’t be much of an impact on auto loan rates,” he says.

Auto manufacturers can set their own loan standards at dealerships and that can have a greater influence on the interest rate a buyer receives than the actions taken by the central bank.

“Car sellers and the lenders associated with them — the captive finance companies — they often provide incentivized interest rates to help vehicle sales,” says Ellspermann.

Because of that, buyers should never rule out dealer financing, but shop around to make sure they really do offer the best deal.

One-stop shopping is not the ideal in car buying. Shopping around not only for the vehicle but the loan can save money in the long run.

“Buyers should take a little time before shopping for a car to see what they qualify for at different institutions — what kind of interest rates they can get — and then go shopping,” says Mike Celuch, chief financial officer of Paragon Federal Credit Union in New Jersey.

Find out how much you can afford by using this Bankrate auto loan payment calculator.

— Sheyna Steiner

CD buyers

When the Federal Reserve meets, we all have questions: What does it mean to me? Will yields on certificates of deposit go up or down? Bankrate is here to help. We’ve looked at five categories — mortgages, home equity loans, auto loans, credit cards and certificates of deposit — to determine if the Fed’s moves made you a winner or a loser. Here’s a look at CDs and money market accounts:

Losers: CD buyers

We really hate calling CD buyers losers, but when the Fed cuts the federal funds rate it shortchanges savers.

The economic news has been quite dismal. We were hoping that inflation was tame enough that the Fed could leave rates alone, but the financial ship is sinking and the Fed is throwing what little it has left at those in the water.

However, CD buyers can use these bad times to their advantage — turn lemons into lemonade, so to speak. Many banks need cash and they’re willing to pay for it.

Here’s a look at the last six months of average monthly yields as surveyed by Bankrate.

CD yields
Date 6-month (%) 1-year (%) 5-year (%)
4/08 1.85 1.94 2.76
5/08 1.86 2.07 2.96
6/08 1.88 2.19 3.24
7/08 1.96 2.29 3.43
8/08 2.02 2.37 3.54
9/08 2.07 2.44 3.54

Wachovia is paying 4.3 percent on a 12-month CD.

“We were watching the yield curve earlier this year thinking it was going to become a much more normal shape than we’d seen for years,” says Larry Fuschino, director of savings deposits at Wachovia.

“Back in February we started offering a 40- and 60-month CD that were some of the better rates that were available. We thought it was a good way to lock in what, in hindsight, would look like very low-cost funding and bring in some new customers at the same time.”

Still, with inflation running at 4 percent or better, consumers need to buy the high-yielders that will at least let them keep pace.

Take action

CDs can give you a good return and you get FDIC protection for your money — something that can be worth a lot these days.

— Laura Bruce

Credit cards

When the Federal Reserve meets, we all have questions: What does it mean to me? Is my credit card company going to sock me with another rate increase? Bankrate is here to help. We’ve looked at five categories — mortgages, home equity loans, auto loans, credit cards and certificates of deposit — to determine if the Fed’s moves made you a winner or a loser. Here’s a look at credit cards:

Winner: Credit card debtors

Since April, the Federal Open Market Committee has held the federal funds target rate at 2 percent. Responding to recent turmoil on Wall Street, the committee opted to knock the target rate down by 50 basis points prior to their next regularly scheduled meeting on Oct. 28-29. The prime rate, set 3 percentage points higher, will fall to 4.5 percent.

Variable-rate cardholders whose cards are indexed to the prime rate should see their rate go down by the same percentage. Not all variable-rate cardholders will get a favorable rate adjustment, however.

“There might be some other factors that might preempt that decline in APR,” says Bill Hardekopf, CEO of LowCards.com. Other factors that could lessen or prevent the impact of the rate cut could be a reduction in your credit limit or shifting risk categories so that your credit rating doesn’t look as stellar.

“You need to check your APR on your next bill to see if you have received that decline,” Hardekopf says.

“Just because the Fed cuts rates, there’s too many options for the card companies if they decide they don’t want to pass that rate cut on to you. You’re pretty much at their mercy, unfortunately,” says Curtis Arnold, founder of CardRatings.com and author of “How You Can Profit from Credit Cards.” Other alternatives include switching your variable-rate card to fixed-rate, changing your margin so your rate goes up instead of down, or instituting a floor rate, below which your APR won’t fall.

Take action

Check your card agreement or call your issuer to see if your rate will come down. Follow up with your issuer if your APR doesn’t drop but should.

— Leslie McFadden