Routine Order

Ben Bernanke took out his wallet and lowered the key interest rate by a full half point. When the Fed lowers prime rate, market become uppity. Think of it as everyone getting their loans cheaper from the government. Banks can now borrow money from the Federal Reserve at 4.75% interest. This discount will make its way through all the financial markets. Big firms, and investors in the stock market and other financial indices will borrow money, expecting their investments to appreciate in value, thereby generating profits. The whole idea behind the Fed controlling interest rates has been that the unemployment has to be kept low, as also the inflation. For the first time in many years, the US market was showing a downward trend in employment rates; also, the sub-prime mortgage crisis has meant that borrowers have had to live in a very cautious market.

If less money is available on the market, economic growth will stumble. These are the reasons why Ben Bernanke pushed for lowering the interest rate. Ben is quite accomplished, with his being an expert in the study of the Great Depression. In fact, two rates have been lowered, the Federal Funds Rate and the Discount Rate. The former is the rate at which banks lend each other money. With a lowering of the fed rate, low rate mortgages are possible, and so this would be a good time to try and refinance your mortgage. A direct result of the fed lowering the rates should be a decrease in the Prime Lending Rates of various banks. Of course, they need not be the same across all banks, but overall, there should be a decrease in the rates of loans offered by lenders. If the rate falls too low, however, you will soon have “too much money chasing too few goods”, and everyone will realize they can charge more for their products and services - leading to inflation. So that’s why a half-percent fall in the interest rate is significant. Everyone was expecting the cut to be a quarter-percent. Let’s hope Ben got it just right, and that this cut should get the markets on track, and everyone employed

Here’s a site promising to deliver Mortgage Rate Calculators. It looks like it is a pretty new site, and very much in the works, but the idea is neat - have a set of calculators for things like mortgage rates, amortization payments and the kind. For those not in the know, amortization is the concept that lends to the fact that more of the initial money payments you make towards your mortgage counts towards the interest on the loan. This means that you’re not so much paying off the loan, as paying off the compounded interest. The amortization schedule defines the proportion between the amounts paid towards interest and the principal loan amount respectively.

After the recent sub-prime mortgage debacle, if one thing is clear, it is that gullible investors make for good prey for the sharks on wall street, and the river runs much deeper than one would have thought. Knowing your calculation and the terms involved in mortgages could just save you from ruin and bankruptcy. I hope MortgageCalculators.org keeps growing and provides what the website’s name promises. It will be really successful, of that I am sure.

File this under “Weird, but True”. According to an article on the UK Personal Loan Store, more than 50% of the people who use a debt consolidation loan actually end up with more debt than they started with. Not that I am thinking of getting a debt consolidation loan - but the recent trends in borrowing in the UK show an alarming rise, and things are about even with the USA, for long the consumer debt champion of the world.

…a number of people use consolidation loans to pay off credit cards, but once the balance on the credit card is cleared it is all too tempting to rack up debt on it again, which is what many people tend to do. The average consolidation loan in the UK is for £16,459 but the survey revealed that even when given the opportunity to do so most people will not pay off the loan early.

The article on loan consolidation quotes a survey by fool.co.uk as the source for the data. If you are in the market for a debt consolidation loan, make sure you read the best practices for debt consolidation, which basically says it would be wise to use a lending broker in your search for a consolidation loan since they would have access to the widest range of loan providers. Also remember that the poorer your credit is, the more likely you might end up with a secured loan, as opposed to an unsecured loan. Defaulting on your payments will then cause the property which was the collateral to be seized by the lender. As a final tip, read the responses to this ask.metafilter.com question - some very nice tips there - between the tips they have all aspects of debt management covered.