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!
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The Fed Will Cut Interest Rates Tomorrow (Sept. 18th)
Cheer Up! You Have More Money in Your Pocket Today
Rate Cut: Federal Reserve Slashes Rates by 0.50%
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on Oct 31st, 2007 at 10:14 am
Right on the money! I hope you don’t mind but I linked to you from my site too. I’m getting lots of people asksing that same questionn.
on Nov 1st, 2007 at 5:35 am
Great way to put a spin on the rate cut. I’m including this link in my site too. Thanks!
on Nov 1st, 2007 at 7:52 am
Steve - no problem. You can link as many times as you like!
Valorie - I just wanted to put things in perspective. There is a lot of thing you can do with that extra $30, and investing should be one of them.
Thanks for stopping by.
on Jan 22nd, 2008 at 5:47 pm
[...] Since August of last year your monthly payment on this HELOC has fallen by $72.92. Not bad! Now you can’t say you don’t have money to save for retirement. [...]