| The Fed is on your side
Since the Fed rate affects how much consumers pay on credit card debt, home equity lines of credit and auto loans, consumers' monthly debt obligations should slide along with the rate cut. For home owners with home equity lines of credit, it shouldn't be long before they see lower monthly loan payments. "That rate will drop three-quarters of a percentage point fairly soon," said Holden Lewis of Bankrate.com. "Probably in about two billing cycles." The Fed's dramatic rate cut - its largest since 1984 - won't do much to help consumers with their credit card debt, however. According to Bill Hardekopf, chief executive of LowCards.com, credit card issuers may choose to lower their annual interest rates by three quarters of a point. However, for a balance of $5,000, that amounts to only $3.13 a month.
Ready To Consolidate That Debt?
IF YOU'RE A homeowner saddled with debt (and we're talking about bad, high-interest debt like the kind you pile up on credit cards) then Alan Greenspan has offered you an escape route. How so? Well, while credit-card interest rates have become increasingly immune to Fed rate cuts (with the average fixed-rate credit card now charging 13.5%), home-equity lines of credit, or HELOCs, have fallen below 4.0%. That's one of the lowest rates we've seen since these products first became popular back in the mid-1980s. And better yet, that rate is before you consider the tax break on your interest payments. Indeed, from a pure number-crunching perspective, consolidating high-interest, nondeductible debt into a HELOC or a home-equity loan, or HEL, is a no-brainer. Of course, your home is the collateral for such a loan, and foreclosure could leave you bunking down in Mom's den.
Reverse Mortgages: The Choices Expand
Only a year ago, homeowners interested in reverse mortgages had little to choose from beyond the plain-vanilla, government-backed products that have long dominated the market. Such mortgages essentially allow homeowners at least 62 years old to sell a large chunk of their home equity back to a bank or other lender in exchange for a lump sum, monthly payments or a line of credit. Now, nearly a dozen large banks and mortgage lenders have launched reverse-mortgage products with lower fees and larger payouts. One lender has reduced the minimum age requirement to 60; others are making loans on second homes and vacation rentals. "Jumbo" reverse mortgages -- for houses valued at as much as $10 million -- are becoming more common. With a reverse mortgage, instead of the borrower making payments to the lender, the lender makes a payment or payments to the borrower.
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