March Madness, Federal Reserve Style
It is March Madness–in terms of the Federal Reserve printing more money than ever before…
The Federal Reserve is going to infuse another $1.2 trillion dollars into our economy by purchasing government bonds and mortgage-related securities. This move is unprecedented, but starting to feel like everyday headlines. The idea is this money will help lower borrowing costs and in effect help consumers spend—what is ironic is this fix is in part what got us into this mess.
How will this massive infusion money help you as an everyday consumer?
Mortgage Rates. It’s expected that rates on home mortgages will drop, but slightly. Rates will probably stay low for some time now, likely in the lower 5% area. However, it still seems that many banks are requiring large down payments and I have read of closing horror stories, all related to the credit crisis. I think the bottom line really is, if you have the cash for a down payment, now truly does represent a great time to purchase a house, rental property, or vacation home. Remember, just because the interest rates are lower, doesn’t mean everyone should be refinancing their homes. To refinance your loan, you’ll have to close another loan, which you’ll remember from your original closing was very expensive. If you don’t own 20% of your home, you’ll have to still pay PMI insurance. If you have a piggyback loan, which is when you have two loans covering your mortgage, then you currently don’t have to pay PMI, a refinance most likely incur such costs.
Credit Card Rates – I don’t think the Feds action will do much for your credit card rate, because most cards track the prime rate, which is already pretty low. Remember the prime rate is different than the federal funds rate, which is the rate you hear the Fed lowering. I do think it’s safe to say that your credit card rate should remain pretty low for some time as well. Also, if your rate is extremely high, call in and have them lower it, you’ll be surprised how easy this can be.
Unfortunately the Fed pumping another trillion into our markets does little for everyday consumers that we see immediately, but we hope it does help the big picture in the long run.
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