Interest Rate

Michele and Russell Poland's credit was shot, but they managed to buy their suburban dream home anyway. After a business bankruptcy and a home foreclosure, they turned to a rare option in this era of tightfisted banking - a subprime loan. The Polands paid nearly $10,000 in upfront fees for the privilege of securing a mortgage at 10.9% interest. And they had to raid their retirement account for a 35% down payment. Most borrowers would balk at such stiff terms. But with prices rising, the Polands wanted to snag a four-bedroom home in Temecula near top-rated schools for their 5-year-old son. By later this year, they figure, they'll be able to refinance into a standard loan.

In the latest iteration of the classic buy or finance conundrum, Edmunds.com took an innovative look at the Buy Here Pay Here industry and its alternatives. Subject of increasing attention in recent years, the Buy Here Pay Here used car lots target consumers with credit issues, cash shortages and an urgent need for transportation. That combination allows the dealerships, which finance their own loans, to charge interest rates upwards of 30%, demand large down payments and repossess with aplomb.

Auto leasing deals abound these days, with offers that often seem too good to be true. How about a well-equipped Honda Accord for $250 a month with no down payment or any other drive-off fees? Or better yet, $199 a month for a Chevrolet Malibu? So, what's the catch? There isn't any if you know what you're getting into. There are always details. You need top-tier credit to qualify. You pay a penalty if you turn that Honda in with more than 36,000 miles. And the payment is not $250 a month because of that little matter of tax. It is more like $275, depending on where you live.

The appeal of age-based mutual funds is that investors generally don't have to worry about them. The funds are geared toward long-term goals such as retirement or a child's college education, and automatically shift into more conservative holdings over time. That normally means selling stocks and buying bonds. Today's ultra-low interest rates, however, pose a challenge for investors in these funds. As the U.S. economy gains steam over time, interest rates are likely to rise.

Shortly after joining the U.S. Senate and while enjoying a surge in income, Barack Obama bought a $1.65-million restored Georgian mansion in an upscale Chicago neighborhood. He secured a $1.32-million mortgage from Northern Trust in Illinois. The freshman Democratic senator received a discount. He locked in an interest rate of 5.625% on the 30-year fixed-rate mortgage at a time when such loans in Chicago averaged as much as 6%.

In a push to simplify mortgage modifications, federal regulators announced a streamlined process that doesn't require borrowers to prove a hardship. "This new option gives delinquent borrowers another path to avoid foreclosure," Edward J. DeMarco, acting director of the Federal Housing Finance Agency, said in a statement announcing the modifications Wednesday. The new modifications, however, would not include reducing the loan balance, a move promoted by housing advocates and others but resisted by DeMarco, who says it would end up costing taxpayers money and would encourage defaults.

Car dealers have found a new way to profit from people with money trouble: leasing them hand-me-down vehicles. The deals are pitched to customers as the cheapest way to drive a used car off the lot, with the added benefit of an easy escape for those who can't keep up with the payments. Few customers are told about the advantages on the other side of the trade. Leases can allow dealerships to sidestep interest rate caps, and there are fewer financial disclosures rules than with a conventional car loan.

China will cut a major interest rate on Thursday for the first time since 2008 as the Asian superpower works to shield itself from the European debt crisis, market fluctuations and its own slowing growth. The benchmark one-year lending rate will fall to 6.31% from 6.56%; interest rates had been unchanged since they were increased last July.  The move to make borrowing costs cheaper, announced by the People's Bank of China on its website (link in Chinese), will become effective Friday.

The interest rate for a key type of student loan is scheduled to double from 3.4% to 6.8% in three months unless Congress, which voted to lower the rate in 2007, decides to keep it in place. The rate for the subsidized Stafford loans had gradually declined from 2008 through 2011, when it bottomed out at 3.4%. Last summer, after some bitter partisan sniping, Congress extended the low rate - but only for a year. It's scheduled to rise back to 6.8% on July 1 unless Congress acts.

The Federal Reserve took its most notable step so far toward unwinding some of the extraordinary measures it took to prop up the economy during the financial crisis. The central bank Thursday raised the interest rate that banks pay to borrow money during emergencies. The hike in the so-called discount rate to 0.75% from 0.5% was widely expected and does not foreshadow an immediate rise in consumer loan rates. The central bank went out of its way to stress that it expected the federal funds rate, which influences credit card and other consumer loan rates, to remain "exceptionally low" for "an extended period."

The interest rate for a key type of student loan is scheduled to double from 3.4% to 6.8% in three months unless Congress, which voted to lower the rate in 2007, decides to keep it in place. The rate for the subsidized Stafford loans had gradually declined from 2008 through 2011, when it bottomed out at 3.4%. Last summer, after some bitter partisan sniping, Congress extended the low rate - but only for a year. It's scheduled to rise back to 6.8% on July 1 unless Congress acts.

The recent improvement in the labor market and other signs that the recovery is gaining speed have surprised economists, fueling speculation that the Federal Reserve will soon pull back from its massive monetary stimulus. One of the Fed's policymaking participants, John C. Williams, said in an interview with The Times that he can envision the central bank dialing back some of its bond purchases this summer before halting them entirely by the end of the year. Williams, president of the Federal Reserve Bank of San Francisco, is a self-described centrist on a panel of 19 Fed officials who meet regularly to discuss the economy and policy options.

WASHINGTON -- Federal Reserve officials Wednesday acknowledged the recent pick-up in economic growth, noting in particular “labor market conditions have shown signs of improvement,” but the central bank made no change in its ongoing aggressive stimulus programs. Fed policymakers, after their two-day meeting, voted 11 to 1 to keep buying $85 billion of Treasury and mortgage securities every month. And as expected, they left the short-term interest rate at near zero, where it has been since late 2008.

Unlike the rampaging stock market, mortgage rates are in a holding pattern, with lenders offering the 30-year fixed loan this week at an average 3.52%, up from 3.51% last week, Freddie Mac said in its weekly survey. The interest rate on a 15-year fixed loan, a popular choice for borrowers refinancing mortgages, held steady at 2.76%, Freddie said Thursday. Borrowers would have paid 0.7% of the loan amount in upfront fees to the lender. QUIZ: How much do you know about mortgages?

You've heard the old joke about the stockbroker showing a friend all the luxuries he's bought with the commissions paid by his customers -- big house, big car, big yacht. And the friend asks, "But where are the customers' yachts?" The joke needs updating. With the Dow Jones industrial average hitting a record, as it did Tuesday, the question is "Where's the workers' payoff?" The Dow's record, in and of itself, doesn't mean much. It's a narrow measure of the stock market's health, viewed through the prism of a basket of 30 stocks.

Small investors should beware of rising interest rates, a regulatory group warned Thursday. The Financial Industry Regulatory Authority issued an “investor alert” warning individuals that their fixed-income holdings could lose value if interest rates rise. With interest rates hovering near record lows, a wide range of experts worry that small investors are not prepared - financially or emotionally - for the eventual likelihood that rates will rise. In general, an increase in the rates being paid on newly issued bonds, such as popular U.S. Treasury securities, erodes the value of older bonds.

NEW YORK — British authorities turned up the heat on Barclays as its chairman, Marcus Agius, became the first big casualty of a scandal involving attempts to manipulate key interest rates. Agius' resignation Monday came as political and financial observers called for further resignations, starting with that of Bob Diamond, the bank's chief executive. Lloyds and the Royal Bank of Scotland were also among about 20 major Western banks that have come under investigation by U.S. and British authorities for allegedly trying to manipulate the London interbank offered rate, or LIBOR, a benchmark for interest rates on corporate and consumer loans.

Hooray! Golly gee! The Fed just reduced the interest rate to 3 1/2%. The lowest in 27 years. But how about food, clothing, other products, services and apartment rentals that have jumped in some cases about 200% in the past few years? So now, the "little old retired ladies and gentlemen" (me being an 82-year-old and one of them) will have to dig into their nest eggs in order to come out even before they die! Last time I looked, my renewals on CDs are down from 7% to 8% to 4.35% and will go even further down, I am afraid.

WASHINGTON -- With economic growth slowing in recent months, the Federal Reserve said Wednesday it would keep short-term interest rates near zero and continue its latest bond-buying stimulus program. Following a two-day meeting, Fed policymakers said recent information "suggests that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors. " Those disruptions included the Midwest drought and Superstorm Sandy.