The Federal Reserve is meeting today and tomorrow. They will issue a report tomorrow and also annouce their decision on the Federal Funds Rate. Not everyone agrees on what they will do. The Wall Street Journal doesn’t appear to be expecting a cut:

…The Wall Street Journal raised doubts that the Fed would cut interest rates again after the central bank’s half percentage point cut last month.

I’m going to go ahead and predict a rate cut. I expect the Feds to cut rates by 0.25%. This means prime will go down to 7.50%, which is great news for those with variable home equity loans.

A 0.25% cut many not seem like a whole lot, but you have to remember the Fed cut rates by 0.50% in September. If they cut tomorrow, then that’s a 0.75% improvement in your HELOC payment in little over a month. Still not convinced? Let’s take a closer look.

Let’s say  you have a $50,000 home equity loan at prime. Before September 18th your rate was at 8.25%, with a $343.75 monthly payment. Now your rate is at 7.75%, and your payment is $322.92. If the rate goes down further to 7.50%, your payment is $312.50. You now have $31.25 extra in your wallet – every month!

Let’s put this in more of a perspective. If you invested that money (remember you’re used to putting it towards your house payment) at 6% return over 30 years you’ll have over $30,000. Hey that’s more than you have right now, so you can’t say it’s not worth something!

Related posts brought to you by Yet Another Related Posts Plugin.