Experts: Rate Cut Will Help Consumers

December 17, 2008

Tight credit market expected to loosen up after Fed drops mark to as low as 0 percent

Many home-equity loans are tied to the prime rate, so the half-point reduction in those cases will be passed on to consumers in the form of lower monthly bills. Lower rates also will benefit holders of adjustable-rate mortgages – including many of those who took out subprime home loans – perhaps helping some homeowners avoid foreclosure, experts said. Credit card rates may also ease, they said.

While consumer loans come down in cost, certificates of deposit and annuity payments will likely continue to fall, experts said, giving savers less reason to save – but perhaps more reason to invest in the stock market or real estate.

Thirty-year, fixed-rate mortgages have lately hovered around 5.5 percent, but could go down to 5 percent or less in the next few weeks, said Brian Hull, chief financial officer for the Savings Institute Bank and Trust in Willimantic. He added that home refinances at his bank have recently been very active and will only get more attractive as interest rates fall.

”(Refinances) are as busy as they’ve ever been,” he said.

Hull said fixed mortgage rates generally have run about 1.5 percent above the rate paid on 10-year Treasurys, but in the midst of economic uncertainty rose to 3.5 percent higher. The spread had dropped Tuesday to 2.6 percent, which still gives mortgage rates more room to fall if confidence and liquidity can be restored to the market, he said.

Excerpt from a longer article from TheDay.com, can be found by clicking here.


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