Thursday, January 31, 2008
Interest rates on home
equity loans, car loans
and credit cards will fall.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
These are good times for borrowers but not for savers.
Banks are adjusting their rates after another large interest rate cut Wednesday by the Federal Reserve.
“This is designed to encourage the consumer to spend,” said Gary Roberts, president of First National Bank in Hermitage, Pa. “There is less incentive to save.”
Both First National and Canfield-based Farmers National Bank cut some of their certificate of deposit rates by one-quarter to one-half of a percentage point last week.
Barb Fisher, vice president of deposit operations and marketing at Farmers, advised savers to expect further rate reductions starting today or perhaps next week.
Roberts said the next round of cuts on savings products will be minimal. Savings rate reductions won’t be as large as the Fed cuts.
The Fed has cut the federal funds rate, which banks charge one another for short-term loans, from 4.25 percent to 3 percent in cuts last week and this week.
Banks can’t cut CD or money-market rates by the same percentage points because the rates would be too low to attract savings, Roberts said.
As savers squirm, borrowers should be rejoicing, however.
Bankers said borrowers with home equity lines of credit or those with home equity loans with adjustable rates should see those interest rates fall by the same amount as the Fed cuts.
That’s because rates on those loans are tied to the bank’s prime rate, which falls in line with the Fed rate. Banks on Wednesday cut their prime rates from 6.5 percent to 6 percent.
John Lacy, vice president of mortgage lending at Huntington Bank’s Warren office, said these borrowers should see the lower rates in their next billing cycle.
People with credit card debt also should see lower interest rates because those are often tied to prime rates, he said.
Car loans generally carry fixed rates, but people taking out car loans should quickly see lower rates than they had been, he said.
Mortgage rates are harder to predict, however. They are set based on a variety of market and long-term investment conditions, but Roberts said they generally will fall if short-term rates stay low.
But you never know how mortgage rates will move, Lacy added.
The day after the Fed cut last week, Huntington reduced its 30-year fixed rate to 5.375 but then increased it to 5.75 the following day. That’s where the rate stood Wednesday.
Rates are down somewhat from December, when they were about 6.25 percent at Huntington.
The bank’s 15-year fixed rate Wednesday was 5.125 percent.
Even though rates have generally been steady the past two weeks, refinancing deals have soared, Lacy said.
The value of refinancing deals in progress in Huntington’s territory of Mahoning, Trumbull and Ashtabula counties has doubled to $21 million, compared with two weeks ago.
Lacy attributed the increase to media coverage of the Fed’s announcement raising awareness about possible savings.
He said anyone with an interest rate of more than 6 percent should consider refinancing. The final decision, however, depends on whether a homeowner plans to stay in a house long enough to pay off the upfront costs in a refinancing deal, he said.
Roberts said First National also has seen an increase in refinancings, going back to the fourth quarter of last year.
He said he thinks the increased applications at local banks is related to the subprime credit fiasco. Overall refinancings may not be up, but business with locally based lenders may be up because borrowers are choosing more often to do business with them, he added.
shilling@vindy.com