So now that the Federal Reserve Board has started cutting rates, what can consumers do about it?

They can map out strategies that minimize their overall borrowing costs and maximize their savings returns.

Any time the Fed shifts its interest rate policy, Americans need to evaluate their financial situations and see if changes need to be made. That’s especially true in this case, since the Fed cut rates by a larger-than-usual one-half of a percentage point, or 50 basis points.

Here are some common financial products and strategies that apply, given the current interest rate outlook.

Fixed-rate mortgages: If you’ve been shopping for a loan lately, you know mortgage lenders anticipate Fed interest rate cuts well before those cuts actually occur. Thirty-year rates fell below 8 percent in August and have continued to decline. As of early January, they’re down to near 7 percent.

Best move now: Mortgage rates will probably keep falling as long as it appears the Fed will keep having to cut the rates it controls directly to prevent the economy from tanking. On the other hand, rates could stabilize if economic data released over the next several weeks shows that the economic slowdown isn’t as severe as people think and only minor Fed stitching is required, rather than radical rate surgery.

Either way, rates almost certainly won’t rise. Both current homeowners who are planning to refinance and home buyers shopping for property right now should figure out if they qualify for a mortgage. But they should refrain from locking in a rate for as long as possible in order to take advantage of any further rate declines. Thirty-year fixed rates averaged 7.2 percent on Dec. 27.

Adjustable-rate mortgages: In the current rate environment, taking out an ARM makes little sense. While rates on long-term fixed-rate mortgages start dropping well in advance of Fed rate cuts, rates on short-term ARMs don’t decline until cuts appear imminent or actually take place. Now that that’s happened, ARM rates will start falling. But they still don’t offer enough of a rate or payment advantage to compensate for the risk of future rate increases that ARM customers assume, but fixed-rate customers don’t. One-year ARM rates averaged 7.02 percent on Dec. 27.

Best move now: Forget ’em! Go with a long-term, fixed-rate loan. Enough said.

Credit cards: Experts say about 70 percent of all credit cards are variable-rate cards and most of those are linked to The Wall Street Journal prime rate, which usually falls the day after the Fed cuts rates. Because of this, people with variable-rate credit cards will see their interest rates decrease very quickly by 50 basis points.

Best move now: Consider transferring a balance to a low, variable-rate credit card. A variable-rate card that beats the rates on any other card in your wallet probably will be an even better deal following rate cuts by the Fed. Some variable credit card accounts are repriced shortly after the Fed changes rates. Other accounts are repriced quarterly so you may have to wait awhile to enjoy those lower interest rates. The average variable-rate standard card had a rate of 17.09 percent on Dec. 27.

Auto loans: Bankrate.com research shows that interest rates on new-car loans tend to shift in lock step with the prime rate. With the prime rate poised to fall by 50 basis points, rates on auto loans from financial institutions should follow suit almost immediately.

Not all car loans are tied to the prime rate, however. And even with a drop in interest rates, few banks and finance companies will be able to match the super-low financing deals available from captive finance companies of auto manufacturers, such as Ford Motor Credit and General Motors Acceptance Corp.

Best move now: If you’re arranging financing for a new car, check out the new lower rates, but don’t ignore dealer financing. Auto manufacturers are rolling out the deals in an attempt to bolster slowing auto sales. Keep in mind that used-car loans are slower to follow the prime rate’s moves, and may not change for a month or two. Even when a shift in rates occurs, it may be less than the prime rate swing. Used-car loan rates averaged 10.71 percent on Dec. 27, while rates on 48-month new car loans averaged 9.64 percent.

Home equity loans: Home equity rates tend to follow the prime rate. Because it changes within a day or two of a Fed cut, new home equity loan customers will start seeing lower rates very soon. Existing borrowers, however, won’t see an impact at all because equity loans have fixed payments and rates.

Best move now: Try holding off on borrowing for as long as possible. Rates on home equity loans should fall as lenders react to the Fed rate cut. Because more Fed cuts are likely coming, equity loan rates should drop even further in the months ahead. They averaged 10.1 percent on Dec. 27.

Home equity lines of credit: Both new and existing line of credit customers will pay less now that the Fed has started cutting rates because almost all home equity lines of credit feature variable payments and rates like credit cards. The average rate on a line of credit was 9.33 percent on Dec. 27.

Best move now: If it’s variable, it’s headed down. If the borrowing choice comes down to “home equity loan vs. home equity line of credit,” go with the line of credit. That way, your payments and rate will drop as the anticipated future Fed rate cuts materialize.

CDs, savings accounts, money market funds: Interest rates on certificates of deposit aren’t nearly as sensitive to anticipation of Fed rate juggling as mortgage rates are. But they eventually do follow the trend. Now that the Fed is actually cutting rates, the downward trend that started to emerge recently will accelerate.

Best move now: Lock in for as long as possible as early as possible. There’s virtually no reason for CD rates to rise in the near future and plenty of reason for them to fall now that the Fed has started cutting rates. The average rate on a one-year CD was 5.37 percent on Dec. 27.

— Posted: Jan. 3, 2001