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Impress Your Friends, Predict Interest Rates On Home Equity Loans

[Mar 19, 2010.]

 

OK, if you are a complete interest rate geek, here is a fun cocktail party game. Beware, it may not prove to be quite as entertaining as the "pick a card, any card" type of trick. But, it is one of the only tricks you can play that may actually help save your friends some money on their home equity loans!

Watch The Fed Funds Futures

Before the party, get online and do a little research. There is a lot of information available about what is going on in the Fed Funds Futures market. For example, yesterday when a mysterious rumor circulated that the Federal Reserve was thinking about raising the discount rate again, futures traders increased their bet that the Feds would raise the Fed Funds Rate at the November FOMC meeting from 66% to 80% likely. At any given time, you can find out how traders are betting interest rates will go. The closer it gets to the actual FOMC meetings, the more accurate their predictions are likely to be.

How Fed Funds Futures Tell You What You May Pay On Your Home Equity Loans

Here's how the process goes:

Genius traders who have access to the best and most current economic information make predictions about what the Federal Reserve will do with monetary policy.

The Federal Reserve makes interest rate decisions at their FOMC meetings about every six weeks. These decisions are not effected by what the futures traders think, but if the futures traders have done their job right, the Fed's decisions and their predictions should be in line.

If the FOMC increases the Fed Funds Rate, the interest you pay on your home equity loans will go up. Most home equity loans are based on Prime Rate. Prime Rate usually tracks the Fed Funds Rate plus a 3% margin. So if the Fed Funds Rate is 0.250%, Prime Rate would be 3.250%.

Take What You Know And Impress Your Friends

Find someone who owned their home while the housing market was on fire and equity rained like water. Chances are they have a home equity loan. Tell your friend how the interest rate on their home equity loan will change in the near future. Once your friend realizes you were correct, you may receive a phone call each month for your secret information.

Find Home Equity Loan Lenders

If you are interested in using the equity in your home to finance improvements, pay for college, or consolidate debts, clickhere.

 

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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