Loan Rates Slide; Savers Still Suffer

The Federal Reserve opted this week to hold steady on interest rates, but rates on some consumer loans--reacting more to the sluggish economic recovery than to the Fed--have been sliding recently. That may provide consumers with another chance to lock in attractive loan rates.

But there’s little help for savers, who continue to suffer with low returns on their invested cash.

“There’s nowhere for savers to go but crazy,” said Keith Gumbinger, an analyst with HSH Associates in Butler, N.J. “But if you missed the chance to refinance your mortgage last year, the window of opportunity is open again.”

Historically low interest rates fueled a refinancing frenzy last fall. But when positive economic data started to come out in November, the refinancing boom came to a screeching halt. The bellwether 30-year fixed-rate mortgage rate rose from a 35-year low of 6.44% to 7.23% within a month.

But lately, the pace of economic recovery has proved so slow that mortgage rates are starting to edge down again. The average 30-year fixed mortgage is going for 6.81%, according to HSH.

Someone with a $200,000 home loan at 7.5% would save about $93 a month by refinancing the loan at that going rate.

Homeowners who have sufficient equity may find the better deal is to refinance other types of loans--from car loans to credit cards--with a home equity line of credit, said Greg McBride, financial analyst with BankRate.com.

Home equity lines of credit are variable-rate loans that tend to move in lock-step with the prime rate.

These loans often require no upfront costs, and at today’s rates they are going for 4.75% to 5% to people with good credit. Those who are fairly certain they can pay down this debt within a few years can enjoy the low rate, with minimal risks, he added.

However, borrowers who don’t think they can pay off the debt before rates rise significantly may want to stick with home equity loans.

The difference between a home equity loan and a home equity line of credit is twofold: A home equity loan is for a set amount of money that you get at closing, and the loan rate is generally fixed for the life of the loan. These loans are going for about 8% to 8.25%, experts said.

A home equity line of credit gives the consumer the ability to borrow up to a set amount that can be tapped or left alone, depending on credit needs. These loans generally tie the loan rates to prime, which is at 4.75%.

Consumers with exceptionally good credit can get home equity lines at prime, while those with some credit blemishes may have to pay prime, plus a margin of one or two percentage points.

Though credit card interest rates have been climbing lately--largely as the result of rising delinquencies and increasing concern about credit quality--there still are a handful of great deals, said Robert McKinley, president of CardWeb.com.

Several issuers are offering no-interest deals on transferred balances for set periods ranging from three months to a year, he said. But be wary of the fine print.

Some issuers, such as Citibank and First USA, have interest-free offers on transferred balances, but sometimes charge a 3% balance transfer fee, he said. Meanwhile, the same company that gives the low-rate deal will take it away--and often charge a punitively high rate--if you’re even a day late with a payment, he said. And fees for all sorts of activities, such as paying late or exceeding your credit limit, have been soaring lately, so it’s costly to err.

“If you have one of these great deals, send the payment as soon as the bill comes,” McKinley advised. “Don’t give them any reason to take that rate away from you.”

The news isn’t nearly as bright for savers, however, who continue to see low returns.

Yields on taxable money market mutual funds still are hovering around historic lows of 1.38%, while one-year certificates of deposit are, on average, paying a paltry 2.3% a year.

“Unfortunately, the Fed’s decision not to act means there’s going to be a longer wait for the rebound in yields,” McBride said. “The only advice we have is don’t invest too much for too long a period. You are locking in very low rates in today’s market, and there isn’t anywhere for rates to go but up.”

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