Interest dropping to .5% ?

Question

What does that mean for people who are wanting to purchase a new home/? I was watching CNN and they are reporting that the interest rate is giong to drop to .5%. Does that mean all the banks are going to have interest rates at about .5% or lower? Can someone please advise?

Answer 1

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The FED has stated today that they have a "target range of 0 to 1/4%."

Fed sets low funds target range (12-16-2008)
http://www.reuters.com/article/bondsNews…

The Prime Rate is what the min rate a person could borrow from a bank, depending on the bank and one's credit score/ economic situation.

Individuals don't have access to borrow from the FED, only member banks can borrow from the FED.

Note:
Banks have not been lowering their rates as when the FED lowers the Fed Funds Rate (FFR). Banks are basically keeping rates about the same or slightly lower and pocketing the profit to shore up their balance sheet.

Banks have not been lending like they used to.

The US Gov and the FED is taking on some $8 trillion in obligations and guarantees: About +/-$3 trillion in obligations (depending on how one defines obligations), and about about $5+ trillion in guarantees, in addition to it's $10 trillion existing debt.

U.S. debt overpowers National Debt Clock (10-10-2008)
http://www.cnn.com/2008/US/10/09/nationa…

Basics: This is what we are looking at:
$700 Billion bank bail out
$2.1+ Trillion FED balance sheet
$5+ Trillion Fannie Mae/ Freddie Mac (FNM/FRE) loan guarantees.
$150 Billion stimulus plan back in the spring (2008) that obviously saved the economy right?
Plus AIG (about $180 billion+), Citigroup, Bear Stearns, next the auto industry bail outs (TBA), etc. add that too plus interest on that bail out money we - tax payers - pay.

That is how I get to the $8 trillion number - ok, it's about $8.13 trillion+ but who's counting?

The USG is also looking to spend $500 billion to $1 trillion+ more in 2009 - have not added that number yet to my equation.

Economic stimulus plan has 3-pronged attack (01-25-2008)
http://www.usatoday.com/money/economy/20…

House to push $500 billion stimulus bill (12-01-2008)
http://news.yahoo.com/s/nm/20081201/us_n…

Obama stimulus could reach $1 trillion (12-13-2008)
http://www.reuters.com/article/newsOne/i…

Pelosi pledges quick passage of $600B stimulus (12-16-2008)
http://www.usatoday.com/news/washington/…

If you owe money, and are racking up debt like there is no tomorrow, wouldn't you want to be paying next to 0% on that interest to your lenders - holders of US Treasuries?

Notice that the general media has not, nor will not cover how much debt and liability the USA is actually taking on. All they talk about is the $700 Billion TARP fund bail out. That was a drop in the well!

After the deflation thing is done, can somebody say inflation?

Source(s):

http://en.wikipedia.org/wiki/Federal_fun…

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Answer 2

When they say Feds cutting rates to .5%, they are referring to the Fed Funds Rate. The Fed Funds rate is the rate at which banks can borrow money from the Fed. The Fed generally wants banks to borrow money from each other, but when this is not possible, they offer a rate to banks as well. If a Bank A needs $ to lend to you, then can either borrow from Bank B or from the Fed. Generally, they'll tend to borrow from the best lender. This helps you in getting a lower rate on your mortgage, but by no means at .5%. I would say probably in the range of 4.5 - 5% depending on your credit, what you are buying, how much you need, and where you live. Talk to a banker for more info.

Source(s):

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