What the Federal Reserve's latest cut means to you on clarkhoward.com

CLARKONOMICS: The Federal Reserve has lowered the interest rates it controls to the lowest points in modern American history. But what does that mean to your wallet?

The Fed's actions influence the prime rate, which has historically been thought of as the lending rate from banks to their best, most credit-worthy customers. Many types of loans operate by quoting you prime plus a margin.

So if you have a HELOC (home equity line of credit) at prime, it now lowers to 3.25% -- a truly exceptional rate. The big gotcha, however, is that many people are in HELOCs that have a floor, which means your rate will never go below a certain threshold.

If you have substantial HELOC and it's stubbornly sticking at a high rate, check out your refinance options if you have good credit. The best alternative might be Charles Schwab, which has HELOCs at prime minus 1.01%. That translates roughly into 2.02%.

Credit card companies, meanwhile, have decoupled from the prime rate. If you are running a balance and have good credit, this is a great time to go shop for a better rate.

Meanwhile, there's a popular misconception that the Federal Reserve's latest move will somehow lower mortgage rates. Traditionally, that hasn't been true; mortgage rates are instead tied to the 10-year Treasury rate.

But right now, not only is the Treasury rate dropping, but the Federal Reserve is also guaranteeing large amounts of mortgage debt. The net result of these factors is that Clark thinks we'll soon see 15-year fixed rates starting with a 3 and 30-year rates starting with a 4.

What others are saying

Look further
Stop crying so much.I am unemployed and look further then the paycheck.
Try to see what they(the government or a small group)do to get all dollars cheaper possible home from around the world and turn countries around buying with dollars and no with euro or other currency but...will take another year or so and keep up with what you do and be helpfull to each other.Thank you.
By MARIN @ 12/26/08 05:34:34 PMreport abuse
fed interest rate cuts
You still don't get it. If the general public does not have reasonable employment that can be counted on to last, they can't be consumers. We need good jobs not just jobs. If a family has to work 3 full time jobs to keep up, we are getting behind.
By lindsay @ 12/26/08 02:41:58 PMreport abuse
Fed Interest Rate Cuts
We retired years ago with c.d.'s paying about 10% and lived comfortably on the interest (have no pension). Now interest rates down to less than when we were married in 1949 when bank accounts paid 2%. We can no longer live on bank interest and social security without dipping into the principal and hoping now at our advanced ages that we do not need to go into nursing homes. The rate cuts are not encouraging us to spend money as we were doing for vacations, eating out, etc.
By Cruiser @ 12/24/08 08:54:09 AMreport abuse
Fed Interest Rate Cuts
This has not helped. Cars are still not selling and neither are homes. We, who live solely in retirement on bank interest are taking huge cuts in our "salary" and therefore are spending much much less on clothes, cruises and other things...so how does this help when they want us to spend!
By Jay @ 12/24/08 08:47:50 AMreport abuse
interest income
I too live on Social Security plus interest from the savings we sacrificed for years to build only to see the Fed wipe it out by taking away all the income from that savings. We did not have company pensions so it was up to us to be responsible and financially independent. Ironically our economy depends on consumer spending ( ?) but the ability to spend has been stripped. I will not be spending any money on gifts, travel, or anything beyond the basic necessities..No common sense in my opinion.
By Marge @ 12/23/08 09:53:47 AMreport abuse
Schwab heloc
Schwab Heloc rates are 3.99% now. They were prime -1.01% when prime was 5% two months ago.
By john @ 12/18/08 06:38:31 PMreport abuse
Rate cuts
We retired young, have no debt, and live way below our means. The rate cuts
have decreased our consumer spending
because the value of our retirement and
income producing assets has decreased.
Nothing the government does will make us spend more.
By Night Owl @ 12/18/08 03:27:49 PMreport abuse
interest rates
The Feds keep lowering interest rates and since we live solely on c.d. interest, we are spending less. After years of saving our money, we are being killed in our retirement (80 years old).
By jayge @ 12/18/08 11:11:48 AMreport abuse
Rates
Here is some input on what this article says. I am a Mortgage Broker. The rates rose almost .500 basis points between the 16th and the 18th of December. Banks further squeezed the potential borrowers with a demand for a credit score of 740 to get a par rate. Most amercians do not have a 740. Most are at 680 or below. You will get hammered with the tiers they have. No rate change for you. They will still pay me more today if I talk you into an arm! Yep thats right they are still up to their tactics of misconception. If anyone suggests and arm to you, they are plain greedy, like the banks.
Credit card debt and auto debt is the reason for 95% of the forclousres. I havent looked at one application that the person could not easily afford their home if you eliminated the credit card debt. This year I pulled and looked at 959 Credit reports. 85% of people credit card rate jumped more that 400%. If you mortgage did that where would that put you. They are allowed to do it too. From 0% to 32%. Again the media is a myth, politicians are so far off they must get their info there.
By Todd @ 12/18/08 10:26:40 AMreport abuse
Funny Money
These moves by the Federal Reserve are going to devalue the U.S. dollar substantially. Bernanke is following to the letter the anti-deflation plan outlined in his infamous 2001 "helicopter money" speech.

Even more disturbing, the Fed has agreed to buy whatever treasury paper the government needs to finance this "plan". This is an electronic printing press with no limits, so fasten your seatbelts for a wild ride in 2009. If you can, get your investments out of anything tied to the value of the U.S. dollar. Use cash to buy land, gold, silver, anything of real value. When this is over they will be putting stacks of $100 bills in outhouses.
By John C @ 12/17/08 09:52:34 PMreport abuse

Look further

Stop crying so much.I am unemployed and look further then the paycheck.
Try to see what they(the government or a small group)do to get all dollars cheaper possible home from around the world and turn countries around buying with dollars and no with euro or other currency but...will take another year or so and keep up with what you do and be helpfull to each other.Thank you.

By MARIN @ 12/26/08 05:34:34 PMreport abuse

fed interest rate cuts

You still don't get it. If the general public does not have reasonable employment that can be counted on to last, they can't be consumers. We need good jobs not just jobs. If a family has to work 3 full time jobs to keep up, we are getting behind.

By lindsay @ 12/26/08 02:41:58 PMreport abuse

Fed Interest Rate Cuts

We retired years ago with c.d.'s paying about 10% and lived comfortably on the interest (have no pension). Now interest rates down to less than when we were married in 1949 when bank accounts paid 2%. We can no longer live on bank interest and social security without dipping into the principal and hoping now at our advanced ages that we do not need to go into nursing homes. The rate cuts are not encouraging us to spend money as we were doing for vacations, eating out, etc.

By Cruiser @ 12/24/08 08:54:09 AMreport abuse

This has not helped. Cars are still not selling and neither are homes. We, who live solely in retirement on bank interest are taking huge cuts in our "salary" and therefore are spending much much less on clothes, cruises and other things...so how does this help when they want us to spend!

By Jay @ 12/24/08 08:47:50 AMreport abuse

interest income

I too live on Social Security plus interest from the savings we sacrificed for years to build only to see the Fed wipe it out by taking away all the income from that savings. We did not have company pensions so it was up to us to be responsible and financially independent. Ironically our economy depends on consumer spending ( ?) but the ability to spend has been stripped. I will not be spending any money on gifts, travel, or anything beyond the basic necessities..No common sense in my opinion.

By Marge @ 12/23/08 09:53:47 AMreport abuse

Schwab heloc

Schwab Heloc rates are 3.99% now. They were prime -1.01% when prime was 5% two months ago.

By john @ 12/18/08 06:38:31 PMreport abuse

Rate cuts

We retired young, have no debt, and live way below our means. The rate cuts
have decreased our consumer spending
because the value of our retirement and
income producing assets has decreased.
Nothing the government does will make us spend more.

By Night Owl @ 12/18/08 03:27:49 PMreport abuse

interest rates

The Feds keep lowering interest rates and since we live solely on c.d. interest, we are spending less. After years of saving our money, we are being killed in our retirement (80 years old).

By jayge @ 12/18/08 11:11:48 AMreport abuse

Rates

Here is some input on what this article says. I am a Mortgage Broker. The rates rose almost .500 basis points between the 16th and the 18th of December. Banks further squeezed the potential borrowers with a demand for a credit score of 740 to get a par rate. Most amercians do not have a 740. Most are at 680 or below. You will get hammered with the tiers they have. No rate change for you. They will still pay me more today if I talk you into an arm! Yep thats right they are still up to their tactics of misconception. If anyone suggests and arm to you, they are plain greedy, like the banks.
Credit card debt and auto debt is the reason for 95% of the forclousres. I havent looked at one application that the person could not easily afford their home if you eliminated the credit card debt. This year I pulled and looked at 959 Credit reports. 85% of people credit card rate jumped more that 400%. If you mortgage did that where would that put you. They are allowed to do it too. From 0% to 32%. Again the media is a myth, politicians are so far off they must get their info there.

By Todd @ 12/18/08 10:26:40 AMreport abuse

Funny Money

These moves by the Federal Reserve are going to devalue the U.S. dollar substantially. Bernanke is following to the letter the anti-deflation plan outlined in his infamous 2001 "helicopter money" speech.

Even more disturbing, the Fed has agreed to buy whatever treasury paper the government needs to finance this "plan". This is an electronic printing press with no limits, so fasten your seatbelts for a wild ride in 2009. If you can, get your investments out of anything tied to the value of the U.S. dollar. Use cash to buy land, gold, silver, anything of real value. When this is over they will be putting stacks of $100 bills in outhouses.

By John C @ 12/17/08 09:52:34 PMreport abuse

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Dec 17, 2008 -- What the Federal Reserve's latest cut means to you

What others are saying