The Fed is on your side

The rate cut will help consumers with large home equity credit payments and may help credit card borrowers as well.

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By David Goldman, staff writer

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NEW YORK ( -- Wall Street investors didn't exactly celebrate the Federal Reserve's emergency rate cut Tuesday, but home owners with expensive lines of credit on their mortgages should jump for joy.

Shortly after the Fed announced a reduction of its federal funds rate to 3.5 percent from 4.25 percent, most major banks reduced their prime lending rates by the same amount. 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 "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, 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.

"That's not enough to make a consumer rich," Hardekopf said.

Hardekopf said he expects most credit card companies to lower their rates, though it's not guaranteed.

For example, after the most recent quarter-point rate cut, in December, Capital One raised most consumer card rates by half a point, expert said.

"The Fed rate cut is not a guarantee that credit card rates will go down," said John Ulzheimer, president of Educational Services.

The trickle down impact on car loans and mortgages is less direct, experts said.

Adjustable-rate mortgages are based on a number of variables, including the interbank market rate known as Libor and the Fed funds rate.

"The rate cut may have already been priced in by the lenders," said Ulzheimer. "Though it was a surprise, the rate cut has been discussed for a while."

Of course, there is one piece of bad news for consumers in Tuesday's rate cut. Interest rates for savings accounts, certificates of deposit and money market accounts will go down as well.

Said Ulzheimer, "It's 'thank you' on one end, and 'no thank you' on the other end." To top of page

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