Mortgages
How soon could it affect you?
Impossible to know.

Federal Reserve cuts in the federal funds rate have an unpredictable impact on long-term mortgage rates. So it’s impossible to know for sure when — or even if — rates will fall as a result of the Fed’s latest rate cut., which set the Fed funds rate in a range between 0 percent and .25 percent.

Fixed-rate mortgages usually do not change significantly in response to cuts in the fed funds rate. However, adjustable-rate mortgages may be more sensitive to Federal Reserve rate decisions.

“Some people with ARMs may see their rate adjust downward.”

Depending on the exact nature of their mortgage, some people with ARMs may see their rate adjust downward the next time the mortgage resets.

Conclusion

It’s impossible to know when — or even if — fixed-rate mortgages will fall given the Fed’s most recent trim to the federal funds rate. However, it’s possible that some homeowners with adjustable-rate mortgages will see lower payments the next time their mortgage rate resets.

— Chris Kissell

Home Equity

How soon could it affect you?
Days to weeks.

The Federal Reserve’s decision to cut the targeted federal funds rate by at least 75 basis points will translate into lower borrowing costs for homeowners who have a home equity line of credit.

Most HELOCs are indexed to the prime rate, a common benchmark for consumer and business loans set by banks. The prime rate moves in lockstep with the federal funds rate.

“Rates on home equity loans have soared to their highest levels since 2002.”

However, it may take one or two billing cycles before consumers see borrowing costs fall. People with existing home equity loans will not see their borrowing costs fall, as rates on these instruments remain fixed.

Rates on new home equity loans do not move in lockstep with the federal funds rate and are unlikely to change based on the Fed’s most recent actions. In recent weeks, rates on home equity loans have soared to their highest levels since 2002.

Conclusion

The Federal Reserve’s latest interest rate cut means you can expect HELOC rates to fall soon. It may take one or two billing cycles before you see the benefits.

Home equity loan rates are not directly correlated to Federal Reserve rate cuts.

— Chris Kissell

CDs

How soon could it affect you?
Short-term CDs and MMAs will move soon; longer-term investments are harder to predict.

Rates on certificates of deposit compete with other fixed-income options of like duration namely Treasuries. Longer-term CDs, just as with longer-term Treasuries, often move in advance of the Federal Open Market Committee if economic conditions are such that a rate change is expected. Shorter-term CDs and money market accounts are more likely to move soon after the Fed makes a rate change.

When rates are dropping, it’s not a good idea for savers to postpone fixed-income purchases, hoping the trend will reverse. On the other hand, plenty of caution is warranted if you believe we’ll be moving into a rising rate environment in the near future, because if you buy longer-term maturities, you could get stuck with lower rates unnecessarily.

“Focus on building cash reserves.”

Let your time horizon and your cash needs dictate the maturities you buy.

Conclusion

The economy may take a long time to get back on its feet. Focusing on building cash reserves can help avoid having to sell stock at the wrong time or having to tap retirement accounts prematurely. It takes a bit of homework and, perhaps, a little inconvenience to open accounts at institutions offering the best return on your money, but it’s worth it.

— Laura Bruce

Autos

How soon could it affect you?
Today’s rate cut will likely not affect auto loan interest rates.

Rates won’t be falling as a result of the decision to cut the federal funds rate today.

Gary Miller, chief executive officer of FirstAgain.com, says it may be awhile before auto loan interest rates — and the state of consumer credit, in general — change.

It is hoped credit markets will be thawed by the drastic cut to short-term interest rates, but that’s not the only thing needed, says Miller.

“It’s painful in the short term for people that are looking for financing.”

“It’s not just what the Fed does but government as well,” he says. “Both will put a variety of measures in action to help reduce unemployment and put the pieces of the puzzle together to get the economy going again.

“At that time, as you restore consumer confidence and things like that, you can have potential rate reductions as you take some of the fear spread out of the rates that exist today,” he says.

Conclusion

Unfortunately right now the economy is a Catch-22 situation. Tighter underwriting standards are making it more difficult for consumers to get financing to buy things and the economy suffers when consumers can’t buy things. Because of the gloomy outlook, even those who can afford to buy on credit are feeling less like spending these days.

“It’s painful in the short term for people that are looking for financing, and it is painful from an economic standpoint because the fortunes of the economy are tied to consumer spending, and a lot of that spending has been curtailed because of inability to access credit,” says Greg McBride, senior financial analyst at Bankrate.com.

— Sheyna Steiner

Credit Cards

How soon could it affect you?
Within 1-3 statements.

OK, now you know if you were a winner or a loser after the Federal Reserve’s decision. So what are you going to do about it? Keep making payments on time and chip away at existing balances.
“Those consumers whose interest rates are tied to the prime rate as an adjustable index, and who are not subject to a minimum APR (or “floor”) that may limit APR decreases at this time, would see their card interest rates drop the next time their pricing agreement calls for an APR review and adjustment,” Ezra Becker, principal consultant at TransUnion’s Financial Services Group, wrote in an e-mail.

Those lucky enough to get a rate decrease should see it take effect within three billing cycles. They shouldn’t break out the firecrackers, though.

“If you get the cut, great. But never assume that that cut’s going to be permanently reflected on your account,” says Curtis Arnold, founder of CardRatings.com and author of “How You Can Profit from Credit Cards.”

“Never assume that that cut’s going to be permanently reflected on your account.”

If your credit risk changes, your rate could head north or your limit could get whacked at the knees. In fact, as many as 60 percent of U.S. banks say they had reduced the credit limits on the accounts of subprime cardholders, according to the latest senior loan officer survey.

Keep your credit score as high as possible so as not to receive any adverse actions. Pay your bills on time and reduce balances as much as possible. Reach out to your lender if you’re having trouble making the minimum payments. Many banks have in-house workout programs that can lower the interest rate or waive fees for a short period of time.

Conclusion

A minority of variable-rate cardholders will see their rate decline within three billing cycles.