How soon will the rate cut hit you?

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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 emergency rate cut.


Fixed-rate mortgages usually do not change in response to cuts in the federal funds rate. However, adjustable-rate mortgages may be more sensitive to Federal Reserve rate decisions, especially if the spread between the federal funds rate and the London Interbank Offered Rate — more commonly known as LIBOR — narrows.

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


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

The Federal Reserve’s decision to cut the federal funds rate by 50 basis points means HELOC rates will fall sooner rather than later.

Most home equity lines of credit are indexed to the prime rate, a common benchmark for consumer and business loans set by banks. The prime rate moves in lock step with the federal funds rate.

However, don’t necessarily expect your HELOC rate to drop overnight. In some cases, it may take one or two billing cycles before consumers see borrowing costs fall.

Rates on home equity loans are trickier to forecast, as they do not move in lock step with the federal funds rate.


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.

— Chris Kissell

Auto loans

Though the impact of today’s 50 basis point surprise cut to the federal funds rate may filter down to consumers in other ways, it probably won’t show up in auto loan interest rates.

If the rate cut is reflected in auto loan interest rates, it will be in about a week, says Mike Celuch, chief financial officer at Paragon Federal Credit Union in New Jersey.

And that is a big if in regard to the rate cut impacting auto loan interest rates.

In a normal environment — in a good economy or even an economy that’s balanced, we’re teetering now, we’re not really balanced — auto loan interest rates would decrease, says Randy Ellspermann, chief financial officer at

“That is what happens, the Fed cuts rates and banks are free to cut the rates on some of their consumer lending products, so I would say normally you could expect that. But we’re not in normal times,” he says.

Credit standards have tightened as liquidity has dried up and credit risks have increased, or, at least, banks’ perceptions of the risk have increased.

For borrowers, that means bringing a very good credit score to the table is imperative. Read this Bankrate feature for tips on improving your credit score.

In order to boost sales, most major manufacturers are offering low APR on loans or cash-back incentives. Though the particulars of their deals vary by location, qualifying buyers may take that into account when shopping for a new car.


The rates shoppers find at dealerships, credit unions and banks will depend on credit scores, but in the end a difference of several percentage points on 60-month loan won’t impact monthly payments enough to restrict vehicle choice. In order to really save money, shop smart, drive a hard bargain and buy a car you can afford to pay off within five years.

— Sheyna Steiner

CDs and MMAs

Certificate of deposit rates 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.

There’s no telling where rates will be next month, much less a year from now. If we’re back in a falling-rate environment you may want to consider your options before rates fall again.

“One of the things that we’re seeing now — and I think all banks are facing this — is uncertainty about what the economic situation will be like in the future,” says Larry Fuschino, director of savings deposits at Wachovia.

“One of the benefits that a CD offers to a bank is that it’s relatively long-term funding, it’s very stable and it gives a good return to the customer.”

If you see some yields and maturities that appeal to you and are right for your financial needs, take advantage of them.


These are bleak times in the financial world. You don’t want to time the market or put all of your money in fixed income, but CDs can provide safety and a good return in this atrocious market.

— Laura Bruce

Credit cards

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? Call your creditors if your rate doesn’t decline within three months.

Although issuers don’t have to pass on rate cuts, some folks will soon get the benefit. The decrease could take effect within a billing cycle or two, says Curtis Arnold, founder of and author of “How You can Profit from Credit Cards.” Examine your card agreement to discern the timing.

Plenty of people won’t see their rate decline. Folks whose APR is fixed, at the default level, tied to the LIBOR index or has hit the “floor” — the minimum rate — don’t stand a good chance of getting a rate reduction.

Some may even see their rate increase if their credit score drops. Issuers are keeping a close eye on customer risk. If your risk heads south, an issuer could make a number of changes to your account, such as reduce your credit limit, raise your APR or close your account.

Watch your mail — or e-mail, if you manage the account online — for notice of a change in terms. These notices can wind up in the same envelope as your statement, or come separately.

If your rate doesn’t drop and you think it should, call your issuer to see what the problem is. If it’s because your credit score has declined, pull free copies of your credit report at Review them to identify derogatory items and dispute inaccuracies.

When your issuer won’t budge on reversing an unfair rate hike, shop around for a better credit card. Credit has gotten tighter, but it’s still possible to get a new credit card, particularly if you’ve got a good credit score.

Those who get a rate cut should keep making their payments as fat as possible.


Variable-rate cardholders due a rate cut should get the effect within three months.

— Lesile McFadden