There has been a ton of buzz lately on if/when/how much/how many times the Federal Reserve will low lower interest rates this month and going forward. After lowering the Fed Funds Rate in August, they are set to do it again in September. But what does that mean for a working mom, stay at home mother, executive, student loan holder? We’ll help you sort it out and see how much of a difference, if any, a change in rates will affect you daily life.
Well firstly, it helps to know what we’re talking about. The Federal Open Market Committee or FOMC of the Federal Reserve meets eight times a year, roughly every six weeks to decide what to do with short-term interest rates. Increase, decrease, or leave the same. The Federal Funds Rate is the interest rate that banks and other depository institutions can borrow from each other overnight to meet the Federal Reserve Requirements. The “Prime Rate” is based on this figure and is pegged at 300 basis points (3%) above the target rate. Consumers can expect to pay prime plus a premium depending on factors such as their assets, liabilities, income, and creditworthiness.
My Mortgage Rate
Normally the first thing people think about when it comes to interest rates is their mortgage and “now that rates have gone down can I refinance at a lower interest rate in order to lower my monthly payment and save money”? The long and the short of it is, if you have a fixed rate then it’s not going to make a difference to you unless you are looking to purchase a home in the immediate future or are going to try and refinance your existing fixed loan for a new fixed loan at the lower rate. The caveat here is making sure your points and closing cost do eat up too much of the savings you hope to achieve with the new rate. Generally speaking, when the Fed issues a rate cut, adjustable-rate mortgage (ARM) payments will decrease. The amount by which a mortgage payment changes will depend on the rate the mortgage uses when it resets. Many ARMs are linked to short-term Treasury yields, which tend to move in the same direction of the Fed or the London Interbank Offered Rate which doesn’t necessarily move in sync with the Fed. Most home equity loans and home-equity lines of credit (HELOCs) are linked to either the LIBOR or the Prime Rate.
My Student Loan
For so many of us the lead topic when we get together with friends or other parents is cost of the children’s education. To get the easy question out of the way, the majority of student loans are federal student loans, and Congress determines those interest rates, not the U.S. central bank so don’t look for any help with your existing student loan. However even the student loan rates are somewhat relative to the current interest rate environment so perhaps by the start of the next school year those base rates will drop. if you already have a student loan, a Fed rate cut isn’t going to make any difference to you unless you decide to try and refinance your existing loan, but make sure the new rate is at leas .75 basis points lower to make the long term cost make sense for you. Some borrowers, however, may want to start paying attention. If you have a student loan with a variable interest rate, you could soon start to see a slight relief in your payments.
So even if the Fed does lower rates for the second consecutive time don’t look for it to have an immediate impact on your daily lives right away other than the interest rate decreasing on your savings accounts or CD when its renewal date comes up. There now you know more than 85% of people out there, including the President of the United States.