Interest rate cuts can save money


The Dow Industrials gained back all of what they lost yesterday, and then some -- up two and a half percent, most of it in the final hour of trading. The Dow closed up, by nearly 300 points, the Nasdaq rose 24.

Apple was one of the day's biggest losers, down sixteen because of a gloomy 2008 sales outlook.

Still, it appears Wall Street has warmed up to the Fed's cut in interest rates.

The Fed's rate cut has done more than calm the stock market. Suddenly, banks have become busy.

"We actually had locations that we had to keep open until 7:00 last night in the Bay Area because our customers and clients had so many questions about what this meant to them," said Wells Fargo Executive Vice President Lisa Stevens.

That's because rates are falling for a variety of loans. This could have an impact on credit cards, mortgages, auto loans and savings.

Lisa Stevens is executive vice president of Wells Fargo bank.

"What the Feds did is they gave us a gift of being able to be financially fit, so take a look at your credit cards. Think about consolidating them into one kind of instrument where you'll have a lower payment. This is the time to do it," said Stevens.

It may take from one to three months before some consumers see the benefit. At Wells Fargo, though, the credit card rate cut is immediate. Mortgage rates dropped about a quarter-percent as soon as the fed cut its rates.

"Now it's at a rate that most people that got a new loan, whether it's a refinance or purchase loan, in the last couple of years should look at that rate, speak with their lender, and see what opportunity waits them," said Guarantee mortgage broker Tim Wood.

Tim Wood has been a Bay Area mortgage broker for 17 years. He crunched some numbers to give us examples of how the lower rates will save homeowners money.

Take a $400,000, 30-year loan, five years fixed. Six months ago, at six-percent, the monthly payment was $3,000. At today's lower rate, the monthly payment drops $187.

On a $600,000 30-year fixed rate loan, the rate of 6.125 percent six months ago meant a payment was $2426. At today's rate, the borrower saves $165 a month.

"These hybrid loans -- fixed for three, five, seven, 10 years -- many of those clients have an opportunity to refinance with a no closing cost, or better termed non-recurring closing costs, so it's a free loan essentially," said Wood.

Lower interest rates impact savings too -- in a negative way. Yields on CD's and money market funds will fall.

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