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Recent news that will effect interest rates on home equity loans

[Jan 30, 2011.]


Whether or not home equity loans are actually cheap loans depends on the interest rates being charged to borrow the money. Since about December of 2008, home equity loans have been among the cheapest ways to fund major purchases, such as home improvements. With the recession a couple years in the past, it seems like the economy should start heating up again soon. When the economy heats up, interest rates on home equity loans may increase. Here is a quick summary of recent economic news that indicates where interest rates on home equity loans may go in the coming months.

Consumer confidence - The Conference Board's survey of how consumers are feeling about their present and future situations was released January 25, 2011. Although both indicators are up from last month, The Present Situation Index came in at only 31.0, while The Expectations Index was 80.3. During good economic times, these indicators are much higher. The low numbers suggest interest rates on home equity loans will remain low.

Unemployment- Much of the sentiment in the consumer confidence numbers is related to unemployment figures. Unemployment in December 2010 was 9.4 percent. As a reference, consider that the Federal Reserve seeks to achieve maximum employment at somewhere around 3.0 percent. The elevated unemployment figures are a continued source of concern at the Federal Reserve. Stimulus program after stimulus program has barely made an impact in controlling this number. Until unemployment improves significantly, interest rates on home equity loans are likely to remain low.

FOMC decisions- The Federal Reserve's committee which decides monetary policy, the Federal Open Market Committee (FOMC) decided to leave the Fed Funds Rate at 0-1/4 percent, unchanged since December 2008. Additionally, the Feds reiterated their commitment to purchase $600 billion in long term Treasuries. This controversial policy of "quantitative easing" shows how desperate the Fed has become to stimulate the economy, again suggesting that interest rates on home equity loans will remain low in the coming months.

These negative reports have a small silver lining; interest rates on home equity loans should remain low in the coming months. That means that now is an excellent time to apply for a new home equity loan or home equity line of credit. Take advantage of these cheap loans to fund your major purchases.

Contact a home loan specialist now.


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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