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You've probably heard that the Fed Funds rate is next to nothing (0-.25% to be exact). That means that banks can borrow money for short periods of times and pay little to no interest. But those savings are just reserved for the banks. When the Fed Funds rate drops, Prime invariably follows, and that means all of us will save.
Prime is the "index" on which most Home Equity Lines of Credit, variable rate credit cards, variable car loans, and other adjustable loan products are measured. So when Prime dropped by .75% (3 quarters of 1 percent), then most Home Equity Lines of Credit (HELOCs), credit card rates and other loans dropped with it. Cheaper rates mean it cost you less to borrow money, which means financing your home improvements, credit card purchases and large purchases on credit will cost you less.
For example, lets say you needed a new roof, gutters and siding for your home, and the total bill from the contractor is $28,000. If you put this on your Home Equity Line of Credit and expected to pay it off over two years, you would save about $500. $500 may not seem like a lot on a $28,000 renovation, but it might make the difference in upgrading your gutters to a larger size, or saving enough extra to make a car payment. And if you take even longer to pay off your renovations and repairs, the savings is even greater. Take 10 years to pay off the work, and the interest rate drop of 3/4 of 1 percent effectively made your renovation cost thousands less.
Don't have an equity line yet? Getting one is usually a quick and painless process. Just contact your mortgage professional to get started, but make sure you shop around and get the banks and brokers competing to earn your business.
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