Federal Funds rate and Prime Rate

August 8th, 2006: THE FED has given short-term interest rates a break from their climb. The Fed’s primary job is to curb the possibility of inflation. There are many tools, with the fastest reaction coming from short-term (aka Federal Funds) interest rate manipulation, which we tend to hear about as the Prime Lending Rate (Prime is 3 points over the Fed rate).

WHEN PRIME RISES, we see an immediate increase in any adjustable rate loan. This includes any Prime based Home Equity Line of Credit (HELOC), standard ARM (Adjustable Rate Mortgage) loans and your Credit Cards. If you have a Neg-Am Option ARM type loan, watch out for additional deferred interest onto your principal if you’re paying the minimum payments. On Credit Cards, work on your highest interest cards first. If you have room on an Equity Line, check with me, your CPA or CFP as to your best use of leverage to pay those time bombs. If you hear friends, family or colleagues grumbling about adjusting rates, they’d be a great referral to speak to me about the many financing options that can improve their cash flow, security, net worth and lifestyle.