Remodel the kitchen: Fed cuts rates again

PHONES RING ON REFINANCING

Soon after the Federal Reserve cut interest rates by one-quarter of a percent Tuesday, the phones started ringing at the offices of Kaufman and Broad Home Corp. Buyers with loan applications being processed wanted to know what was going to happen to their mortgage rates.

"We're telling them we just have to wait and see how things shake out," says Jeff Charney, a senior vice president of the Los Angeles-based company.

Almost everyone agrees the interest-rate cut - the Fed's third in six weeks - will help the economy. "The Fed has taken some preventative measures here," says Paul Kasriel, an economist at Northern Trust Co. in Chicago. "This means we are very unlikely to have a recession in 1999."

There are already some signs that the prior Fed easing is starting to filter through to the economy. In a survey released yesterday, that National Association of Home Builders found builders are the most optimistic they have been in the survey's 13-year history. "The market is very strong for single-family housing," says Michael Carliner, an economist with the organization.

There are reasons for optimism. As mortgage rates have steadily moved lower, more people can afford houses or refinance mortgages to get extra disposable income.

For example, an 8 percent mortgage on a $130,000 loan means a monthly payment of $953.89. Countrywide Home Loans, the nation's largest mortgage banker, will now refinance in southern California at 6.75 percent with 1.125 points. This would reduce the monthly payment by $110.72.

Mortgage lenders advise borrowers not to hold out for still lower rates, even though mortgage rates have been in a steady downtrend for two years. "Today could be the low point; I don't think I'd wait," says Tom Halley, an executive vice president at Countrywide in Calabasas, Calif.

The lower rates may also make it worthwhile for first-time homebuyers, or those trying to move up, to buy. More people are out looking, and they may find they can afford to own. "The cut could mean the difference between owning and not owning," says Mr. Charney.

The lower rates will also benefit people with credit cards, personal lines of credit, and home-equity loans, since they are almost all linked to the prime lending rate, the rate at which banks lend money to their best customers.

Citibank, like many banks, changes its credit-card interest rates on a quarterly basis. Thus, the prime rate has dropped three-quarters of a percent since the bank last changed its interest rates. If rates don't drop any further, on Dec. 15 the bank will lower its rates on its "Classic" card from 17.9 percent to 17.15 percent. For those with credit balances, this means more money to spend or save.

Mortgage lenders advise borrowers not to hold out for still lower rates, even though mortgage rates have been in a steady downtrend for two years.

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