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Home Equity Loans: Recent FOMC Meeting

[May 1, 2010.]


The FOMC Meeting

About every six weeks the Federal Reserve's Federal Open Market Committee (FOMC) meets to decide whether or not to change interest rates. The most recent two day meeting resulted in interest rates remaining unchanged. The Fed Funds Rate will be at 0.000% - 0.250% as it has been for more than a year.

Why The FOMC Meeting Matters To Home Equity Loans

Many home equity loans are adjustable rate mortgages using the Prime Rate index plus a margin. Prime Rate historically tracks the Fed Funds Rate plus 3.000%. Because the Fed Funds Rate is at 0.000% - 0.250%, Prime Rate has been at 3.250%. If your home equity loan had a balance of $50,000 and your interest rate was 0.500% over Prime Rate, or 3.750%, your monthly interest only payment would be $156.25.

Based on current economic data, the FOMC decides if interest rates need to go up. When interest rates go up, Prime Rate will go up, and the monthly payments on adjustable rate home equity loans will go up. If you want to know where the interest rate on your home equity loans are headed, pay attention to the FOMC's decisions.

Mixed Economic News Is Keeping Interest Rates Low

The US economy is struggling to recover from the worst recession since the Great Depression. Many economists are calling it The Great Recession. Harsh economic conditions led the FOMC to take interest rates to zero in order to stimulate the economy as much as possible.

Recent economic news suggests that the US economy is stabilizing, although unemployment is still very high. The most recent FOMC press release specifically points to these positive signs.

  • Unemployment has improved

  • Household spending is up

  • Modest income growth

  • Business spending on equipment is up significantly

  • Housing starts have edged up

  • Long term inflation is under control

These positive signs, mixed with the negative unemployment numbers is the reason the FOMC has decided to leave interest rates exceptionally low for an "extended period." Once unemployment statistic improve and return to normal levels, economists expect the FOMC to begin raising interest rates. Pay attention to economic news and watch the FOMC's decisions to know where the interest rate on your home equity loans will move.

Get information from a mortgage lender about new home equity loans today.


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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