Fed Rate Cut: What’s in It for You: Could Mean Lower Mortgage, Car, Credit Card Bills

By Louis Llovio

RISMEDIA, Feb. 4, 2008–(MCT)–The Federal Reserve dropped interest rates again yesterday. What does the rate cut mean to you?

Mortgage: The immediate impact of the cut is that it will help people in precarious situations with their homes, said George Hoffer, an economics professor at Virginia Commonwealth University.

“When you put the two rate cuts together they’ll do more to keep people in their homes than any cockamamie ideas politicians have come up with,” he said.

This is particularly true for homeowners holding adjustable-rate mortgages because rates about to reset will do so at a lower rate, he said.

Alan Gayle of Trustco Capital Management in Richmond said shrinking rates also will help homeowners looking to tap into the equity in their homes.

The news is not good for everyone though. “For the borrower that doesn’t pass the credit screening, the lower rate is not going to help,” he said.

Car loans: VCU’s Hoffer said a surprise benefit will come at car dealerships.

Manufacturers will probably extend their zero percent specials to more products, he said. But because carmakers are getting their money cheaper, to try and boost sagging sales the manufacturers will likely partner those rates with factory rebates.

Customers usually choose between rebates and special interest rates when buying a car.

Credit Cards: For credit-card holders coming off a holiday shopping spree, the rate cut could be welcome news as well.

“A lot of borrowers are going to see a big benefit from” the rate drop, said Trustco’s Gayle.

Bill Hardekopf, CEO of LowCards.com, a Web site helping consumers find lower rates on credit cards, advises consumers to monitor their credit-card accounts to see if the cut is passed on.

“Cardholders should not assume that their credit card rates are dropping just because the Fed is aggressively lowering interest rates. The issuers have the freedom to adjust their own rates,” he said.