Fed raises rates again.

[laurence]

Despite Katrina, the Fed raises rates again, signaling they are more concerned with the prospect of inflation than any short term dampening on the economy the storm may have.

You know, I'm almost ready to transfer what's left on my HELOC to one of my credit cards, 18 months of zero, I may be able to pay it off by then...

 

[Andre1969]

Yeah, I'm starting to get a bit irritated by this constant nickel-and-diming of the rates, too. My HELOC is currently Prime + .25%, so this is going to bump it up to 7%! Still, I try to put it in perspective. My HELOC is right around $100K. So this latest jump will come out to another $250 per year in interest. Or, about $20.83 per month.

On the plus side, I guess that money market accounts like INGDirect and Emigrant-Direct will bump up a bit!

 

[laurence]

Yeah, I'm starting to get a bit irritated by this constant nickel-and-diming of the rates, too. My HELOC is currently Prime + .25%, so this is going to bump it up to 7%! Still, I try to put it in perspective. My HELOC is right around $100K. So this latest jump will come out to another $250 per year in interest. Or, about $20.83 per month.

On the plus side, I guess that money market accounts like INGDirect and Emigrant-Direct will bump up a bit!

Mine's similar terms, 33k, so I guess I'm looking at an extra 7 bucks a month. We are paying triple the minimum plus big lumps when we come out ahead at the end of the month.

 

[FunGoals]

EmigrantDirect just raised their rate to 4%

 

[retire@40]

I thought they would skip a hike this time and start the quarter point hikes up again at the next meeting. I thought they would want to let the economy absorb the increased fuel costs and the hurricane effects. I hope they know what they are doing.

The market is down right now, so I think most people were thinking like me.

On the bright side, CDs might start looking better and better as they start going over 5% and approaching the 6% level.

The question still remains: When will long-term rates start moving up That's the part I don't understand right now.

 

[brewer12345]

Anyone refinanced their HELOC?  I have one with no balance but I have found that I could get either a higher LTV at the same pricing or the same LTV at cheaper pricing.

 

[Andre1969]

I think long-term rates like fixed mortgages are tied to T-bill rates, aren't they? When the overnite lending rate goes up, and the Prime Rate, I think credit cards and HELOCs are usually the first thing that gets impacted. Then, soon after, auto loans, student loans, etc go up. And with ARM mortgages, they adjust upwards the moment that your year or whatever is up. At least, that's my understanding of it.

 

[MJ]

EmigrantDirect just raised their rate to 4%

3.5% to 4%. They don't mess around.

 

[laurence]

3.5% to 4%. They don't mess around.

That's another $75 for me, yay!

 

[Michael]

The question still remains: When will long-term rates start moving up That's the part I don't understand right now.

The market sets long term rates, not the fed. Low long term rates mean that there are more people saving world wide than there people wanting to borrow their savings.

 

[Nords]

So this latest jump will come out to another $250 per year in interest.  Or, about $20.83 per month.

What a coincidence, that's about how much more spouse & I will be paying to gas up our cars.

 

[TromboneAl]

spouse & I will be paying to gas up our cars.

What's the story with the Hawaii gas price cap thing? Make any difference at the pump?

 

[Gone4Good]

Yeah, I'm starting to get a bit irritated by this constant nickel-and-diming of the rates, too.    My HELOC is currently Prime + .25%, so this is going to bump it up to 7%!  Still, I try to put it in perspective.  My HELOC is right around $100K.  So this latest jump will come out to another $250 per year in interest.  Or, about $20.83 per month.

On the plus side, I guess that money market accounts like INGDirect and Emigrant-Direct will bump up a bit! 

He-he, he-he, the end of free money. I love it.

 

[Nords]

What's the story with the Hawaii gas price cap thing?  Make any difference at the pump?

A couple years ago the state's Democratic governor officially, publicly, and loudly observed that the gas companies were raising Hawaii gas prices in response to Mainland price rises but not dropping them when Mainland prices dropped. A bunch of political finger-pointing actually led to a multi-million multi-year lawsuit against Chevron that ended in a draw.

So the Democratic state govt passed a gas-price cap law that took effect this year. Hawaii's Republican governor has been trying unsuccessfully for the last three years to get the Democratic state Congress to modify and then to repeal the law.

Instead of JG's vaunted free enterprise system, Hawaii's new gas cap law sets a max price. (Instead of the dealers having to collude with one another, they now have the government publishing their pricing information for them.) According to the rules, price caps are based on an average of prices in the Gulf Coast, New York and Los Angeles from the five business days leading up to the weekly Wednesday publishing date.

That means when Mainland prices go up, the caps (which are published on Wednesday) reflect higher prices for next week. In other words everyone on the island knows that next Monday's prices will be higher. You can imagine what the rest of Wednesday/Thursday/Friday is like. Two weeks ago everyone was alerted that prices were going to jump 50 cents/gallon and the gas station lines looked like 1974 again.

However last Wednesday the Mainland prices had dropped, so last week everyone knew that this last Monday would bring lower prices. Gas stations were ghost towns on Wed/Thu/Fri last week. But then on Saturday we got worried about the hurricanes! So business picked up a little due to panic hurricane-prep buying.

On the 20th of August (before Katrina) we paid $2.59/gal. On 10 Sep I paid $3.09 and on the 17th I paid $3.39 (in 20/20 hindsight I shoulda held on until yesterday). Now we're waiting until Wednesday's price data is released so that we can decide if we're rushing to buy gas on Thursday (with Oahu's other 899,997 residents) or if we're waiting until next Monday.

The only consolation in this silliness is that the weekly limit-cycling is driving the retailers and the govt even crazier than the customers. I'm sure there are over 10,000 complaints per week rolling into the various govt agencies and the gas station operators alternate weeks of being caught with full tanks of expensive fuel for weeks when they're accused of being dirty price gougers.

But between Aug 04-Aug 05 we spent $1150 on gas, so if you figure that new prices settle out at a 25% increase over August (~$3.25/gal) then our annual fuel costs will rise about $290 or $25/month. I'm glad that we're retired but that's not enough to change our behavior. It's not even enough to make me check the air pressure in my bicycle tires.

OTOH if Brewer could send a few of his tankers over here we'd have a lot of fun with the arbitrage...

 

[maddythebeagle]

What's the deal with all of you with HELOC's. I thought this board was about consume less and save more? and retire early?

 

[laurence]

What's the deal with all of you with HELOC's. I thought this board was about consume less and save more? and retire early?

Student loans, our income phased out the tax deduction. Pay off with HELOC, tax deduction back. I'm all about the penny saved=penny earned.

 

[brewer12345]

What's the deal with all of you with HELOC's. I thought this board was about consume less and save more? and retire early?

For me it is the belt and suspenders approach. I have never used the thing and I don't foresee circumstances under which I would do so, but it cost nothing to set up, the money is relatively cheap if I ever need it, the interest is tax deductible, and they were willing to give me a godawful large limit. Since I started a new, relatively risky job earlier this year and I am the breadwinner for my family, I put it in place as an extra safety net.

 

[maddythebeagle]

I see. Sounds like a good idea (to have available if you need). Let's hope you dont every need then!

 

[Andre1969]

In my case, I probably could've done without my HELOC, but having it gives me a nice, secure feeling. And, this might actually be a bit counterproductive, but I ended up borrowing $100,000 so I could get the tax writeoff. That makes it worthwhile to itemize instead of going the standard deduction route, so I can write off state/local taxes, charitable contributions, property taxes, and so on.

Having the HELOC also keeps me out of the next higher tax bracket. And right now, about $70K of that is sitting in an Emigrant Direct account, so while I might be paying 7%, I'm earning 4% on money that I can take out at any time. Although with that 4% interest being counted as income, which will be taxed, that's going to push me back up a bit, but not enough to go into the next tax bracket.

I'm in a bit of a rough patch right now, with a garage I'm building that's going over budget, plus some unexpected car repair bills that popped up, and I've also done a few naughty things that might make my car insurance go up! So for the time being having that money parked in the Emigrant account gives me a nice, warm, fuzzy feeling!

 

[maddythebeagle]

You can still write off state/local taxes, charitable contributions, property taxes, and so on.

Itemize every other year! and prepay taxes....you can double up 2 years worth in one year. Your state dept. of revenue should have a form on their website. Then you get a waiver from state withholding.

 

[Nords]

It's about creative financing, too!

What's the deal with all of you with HELOC's. I thought this board was about consume less and save more? and retire early?

Hey, a lot of people use HELOCs as a source of emergency funds.

Instead of letting a few thousand rot at MM rates (admittedly as high as four percent) as insurance against an emergency, that money can be put to better use at higher interest rates (CDs, bonds, or even equities) knowing that a HELOC provides immediate cash for a few weeks/months while figuring out a way to sell off something else. It's cheaper than a credit card and most HELOCs have no closing fees.

After our last NFCU mortgage refinancing, their home office cold-called us to offer a HELOC (for an amount of 15% beyond the balance of the mortgage) just based on the refinancing documentation. There were no closing costs and they even sent the notary to our home to sign the closing paperwork on the back lanai with a frosty beverage. It's popular, too-- the notary said that she was driving over 250 miles a week to closings on an island that's only 600 square miles.

Our HELOC has actually earned a bit of cash. Its initial six-month interest rate was 1.9% so we maxed it out and dumped it into a six-month CD at 2.5%. We paid that off at maturity and it sat at a zero balance for a while until a friend had a money-transfer problem. We loaned her the cash from our HELOC, she used it to solve her problem (thereby avoiding another round-trip airfare to the islands), and we paid the $1.02 of HELOC interest when she paid us back. But she bought us lunch so we ended up saving more (although I guess we also consumed more!).