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: First-time homebuyer
Mortgage rates have plunged suddenly — but not because of any action by the Federal Reserve.

Instead, it was the federal government’s decision to take over struggling mortgage giants Fannie Mae and Freddie Mac that sent rates down.

Thanks in part to these lower mortgage rates, first-time homebuyers who scrape together a substantial down payment may be looking at the buying opportunity of a lifetime, says Bob Walters, Quicken Loans chief economist.

“(For) first-time homebuyers, it’s the most incredible opportunity in the world,” Walters says.

 Loser: Homeowner with little or no equity
Lower mortgage rates and falling home prices are also a boon to many homeowners looking to trade up to a bigger house.

However, homeowners who can’t sell their homes or who are upside down on their mortgages will not be able to take advantage of the opportunity, Walters says.

Meanwhile, tightening credit conditions may prevent many home shoppers — and homeowners looking to refinance — from taking advantage of lower rates, Walters says.

“The losers are the people who are upside down on their homes, the people who can’t refinance … because they don’t have equity in their home anymore,” Walters says. “Those are the folks who are struggling.”

Take action
Thinking about buying your first home? Falling mortgage rates and plunging home prices make now an ideal time to take the plunge, Walters says.

“Given that a 30-year mortgage rate is now in a high 5 percent or low 6 percent range, it’s all coming together for a first-time homebuyer,” he says.

Homeowners whose mortgages are about to reset — whom Walters characterizes as being on the “cusp” of potential economic difficulty — or who have a high mortgage rate — should take advantage of any opportunity to refinance now.

“Credit tightening is continuing and underwriting guidelines are continuing (to tighten),” Walters says. “So folks who can refinance should, especially people who are on the cusp.”

— Chris Kissell

HELOC

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:

Winner: HELOC borrowers
For the third straight meeting, the Federal Reserve decided to stand pat on the federal funds rate.

The decision not to hike rates had been expected, especially after this weekend’s trio of shocks to the financial system — the bankruptcy of investment bank Lehman Brothers, the sale of financial services firm Merrill Lynch and turmoil surrounding one of the world’s biggest insurers, American International Group.

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 inaction means homeowners with home equity lines of credit will continue to enjoy low borrowing costs — as long as their lenders haven’t frozen access to equity lines.

Loser: Home equity loan shoppers
The Fed’s inaction will not directly impact home equity loan rates. Unlike HELOCs, loan rates generally do not move in tandem with the prime rate.

However, home equity loan rates have been climbing in recent months and are now more than 30 basis points higher than their 2008 lows.

As a result, home equity loan shoppers looking for new loans are finding less attractive rates.

Climbing rates do not affect people with existing home equity loans, as rates on these products are fixed.

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

The Federal Reserve’s decision to leave interest rates unchanged means borrowing costs on home equity lines of credit will remain low.

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

If you need to borrow money — and if you have enough equity to attract lenders — opening a HELOC or taking out a home equity loan may be your best option.

— Chris Kissell

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
The Federal Open Market Committee surprised no one by standing pat on the federal funds rate. The next meeting on Oct. 29 may hold some surprises, however, in light of the collapse of Lehman Brothers and the buyout of Merrill Lynch over the weekend.

Though the impact may be more acutely felt by consumers in other ways, car buyers will be mostly unaffected by the tumult in the financial industry, says Mike Celuch, chief financial officer at Paragon Financial Credit Union in New Jersey.

“Interest rates have been pretty flat for the last several months; it looks like they will probably remain that way,” says Mike Celuch, chief financial officer Paragon Federal Credit Union in New Jersey.

When the FOMC does make another move on the federal funds rate, auto loan interest rates will move with them.

“Overall when the Fed makes any kind of rate cuts or hikes it’s going to impact on the borrowing costs for financial institutions,” says Celuch. “And that will affect their rates that they set for their longer-term instruments like mortgages or shorter-term (instruments) like auto loans.”

In the weekly Bankrate interest rate survey, rates for loans on new and used cars have been hovering near record lows.

START INTERACTIVE HERE.
A history of low interest rates
60-month new car loan rate 36-month used car loan rate
Previous low Jan. 14, 2004 7.2 percent 8.05 percent
Record low of May 7, 2008 7 percent 7.74 percent
Rates as of Sept. 10, 2008 7.09 percent 7.79 percent

INTERACTIVE ENDS HERE.

For some perspective, the Federal Open Market Committee went on a rate-slashing spree in 2001. On Jan. 3, 2001, the date of the first decrease, the standard new car auto loan rate tracked at the time, the 48-month loan, was recorded at 9.64 percent.

Ever since January of 2001, auto loan interest rates have been comfortably beneath that high — not that this fact has spurred any buyers to head to dealerships to buy cars.

“Interest rates don’t have a huge impact on the demand for cars,” says Celuch.

Incentives on the other hand, sometimes help get buyers in the door.

“Some of the incentives that GM put into place helped them move inventory, that’s why they extended (them) through September,” he says.

In August the automaker announced an “employee discount” on almost all of its vehicles.

Take action
Learn to negotiate effectively to save money on a car purchase. Though a low interest rate loan will save you money in the long run, knowing a good deal from a rip-off can shave thousands off the price upfront.

If you’re buying a new or even a used car, begin by finding out the manufacturer’s suggested retail price or MSRP. A good place to start your research is Kelley Blue Book. Read the Bankrate feature, “5 crucial steps to a bargaining win” for directions on knocking the socks off a car dealer.

— 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:

 Winners: CD buyers
The Federal Reserve’s decision to keep the federal funds rate at 2 percent won’t spur CD yields higher, but CD buyers have plenty of opportunities even without the Fed’s assistance.

As we know all too well, economic news has been quite dismal. The collapse of Lehman Brothers and the acquisition of Merrill Lynch by Bank of America are just the latest in a year that’s seen one crisis after another. Inflation has been tamed considerably thanks to sinking commodity prices. That pretty much ties the Fed’s hands, and if this situation continues, we could see the Fed’s key short-term interest rate sit at 2 percent for the rest of 2008. But, as mentioned, it may not matter much to CD buyers.

“I think the Fed is on hold to see what effect the government has had bailing out some of these troubled places. So, over the next three weeks (to) 30 days, we probably won’t see too much in the way of movement from the Fed’s standpoint,” says Jason Flurry, CFP and president of Legacy Partners Financial Group in Woodstock, Ga.

Take a look at the following chart, which shows the last six months of average monthly yields as surveyed by Bankrate.

START INTERACTIVE HERE.

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 2.05 2.43 3.56

INTERACTIVE ENDS HERE.

“The banks are trying to collect as much money as they can. That’s why we’re seeing the rates come back up,” says Flurry.

Even though the yields are improving, they’re still not running above inflation — at least with regular CDs. High-yield CDs, however, are definitely worth a look. As of this writing, there are a half-dozen six-month CDs with yields of 4 percent or better on Bankrate’s high yield database. Washington Mutual tops the list in the one-year category with a 5 percent yield with a minimum deposit of $1,000. If you’re tempted to go out five years you’ll find at least 10 institutions offering 5 percent or higher.

Take action
This isn’t a bad time to get back into CDs if you’ve been staying on the sidelines because of low yields. You’ll need to shop around, but it’s worth it.

— 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
A year ago the Federal Open Market Committee, or FOMC, started reducing the target for the federal funds rate. When the rate-cutting streak ended in April, the federal funds rate stood at 2 percent. For the third time in a row, the committee has opted not to change the target rate. The prime rate, set 3 percentage points higher, will stand at 5 percent.

“If the Fed lowered rates, that certainly would put downward pressure on prime rates and that would certainly eventually filter into credit card rates,” says Beth Ann Bovino, senior economist with Standard & Poor’s.

While the Fed’s inaction won’t influence credit card variable rates downward, it won’t prompt issuers to raise rates either, which is always a good thing. Keep in mind, however, they can always jack up your rate if you pay late or your credit score drops.

The subprime mortgage crisis puts pressure on credit card issuers to mitigate risk. Recent financial upheaval at Lehman Brothers and Merrill Lynch won’t have an “immediate, direct impact” on the credit card industry, notes Greg McBride, senior financial analyst at Bankrate.com.

But, he says, “The prospect of tight credit growing even tighter is one that will need to be watched very closely.”

Some issuers are reacting to the credit crunch by lowering credit limits. According to 1,083 consumers polled in Consumer Action’s Credit Limit Survey, almost 10 percent reported credit limit reductions in 2008.

Linda Sherry, director of national priorities of the nonprofit advocacy organization Consumer Action, says if her credit limit was lowered, she would call to find out the reason.

“If they told me it was because I was looking more financially risky — for instance, my credit score had gone down — I would buy a copy of my credit score and I would definitely get my free copies of my credit report from Annualcreditreport.com.”

She said it’s important to find out what’s dragging down your credit score.

“If you’ve been a good long-term customer of that bank and haven’t really screwed up at all, then you can attempt to argue with them for what they’ve done to you and ask them to reverse it.”

Take action
Do what you can to prevent a credit limit reduction. Keep tabs on your spending so your balances are reasonable in relation to your credit limit. Sherry recommends people keep their utilization under 50 percent. In other words, if your card limit is $5,000, keep your balances below $2,500.

— Leslie McFadden

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