Fed rate cut to lower credit card, home loans costs

Fed rate cut to lower credit card, home loans costs


The Fed’s surprise rate cut this week will likely trim borrowing costs further on mortgages, home equity lines and credit cards.

The Federal Reserve lowered its benchmark interest rate Tuesday by half a percentage point, the first rate cut outside of a scheduled meeting since the global financial crisis in 2008.

The latest reduction, to a range of 1% to 1.25%, was the fourth time the central bank has lowered borrowing costs since July. 

“When the economy slows down or looks like it could, the Fed may choose to lower interest rates to incentivize businesses to invest and hire more,” Howard Dvorkin, chairman at Debt.com, said in a note. “Reduced rates may encourage consumers to spend more freely, helping economic growth.”

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To be sure, Dvorkin questions whether the Fed’s rate cuts will make it harder for lower-income, higher-risk borrowers to obtain loans if banks decide to pull back lending. Falling rates also threaten to nudge down bank savings rates for seniors and others on fixed incomes.

Here’s a look at how a Fed cut could affect these products:

A person on their computer.

Fed rate-cut impact on mortgages

Potential homebuyers and refinancers with mortgages could score even lower rates in the coming weeks. That’s because the Fed’s key short-term rate affects 30-year mortgages – the most common home loan – and other long-term rates indirectly. 

Those rates have fallen to historic lows in recent months as the central bank has lowered borrowing costs, giving home buyers a reprieve. 


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