The Federal Reserve has officially lowered its interest rate on another quarter percentage point for the third time in 3 consecutive months this year.
The reason why? In hopes of reducing costs on things such as credit cards, home equity lines, adjustable-rate-mortgages- and auto loans to help consumers and to try help stabilize a better economy.
So what does that mean for you as the consumer?
Credit card rates normally rely on the prime rate which is heavily influenced by the Federal Reserve’s rate. Although they work hand in hand with one another, it will most likely take a month or two for the quarter percentage point drop to actually come into play. The Federal Reserve’s previous 2 cuts since July & August have lowered average credit card rates from 17.85% to 17.57%.
Home equity lines
Most home equity lines of credit, or HELOCs, also rely heavily on the prime rate. The two previous cuts in July and August lowered the HELOC rate from 6.73% to 6.23%, saving roughly $12.50 on a $30,000 home equity line of credit monthy payment. With the 3rd consecutive cut from the Fed which will also take a month or 2 to kick in, you can expect to save another $6.25 on top of the $12.50 which total savings up to almost $20.
Unlike credit cards and HELOCs, rates on adjustable-rate mortgages are only altered annually. Which means the effects of the Fed’s rate cut may hit all at once. “You can expect it would reduce the monthly payment on a $200,000 mortgage by $56,” (Tendayi Kapfidze, chief economist at LendingTree.)
The Fed’s short-term rate directly affects 30-year mortgages, which is by far the most common loan & effects long term loans on indirectly. The average rate has dropped to 3.75% from 4.86% a year ago, according to Freddie Mac.
Although the Fed was continuously raising rates, many of those rates were not passed down to automobile buyers because manufacturers often always gave them a better option to finance with them to keep everything In-House. However, now that vehicle sales have dramatically slowed down, competitors are doing whatever they can to increase sales & be the top go to company when it comes to automobile sales & as a result, some lenders will start offering these lower rates.
A lot of student loans come with interest rate that also follow the prime rate, which we discussed earlier is heavily influenced by the Fed. Each loan term varies from the other however if you are on a regular payback schedule, your payment will more than likely decrease due to the rate cuts. However if your on an income-repayment plan, your monthly payment wont change, but a lower portion of your bill will go towards the interest rather than the principal.
Bank savings rates
Customers at the bank who finally started to see reap the benefits of higher savings rates could possibly be missing out & losing a good portion of their gains.