The Federal Reserve yesterday decided not to change a key bank interest rate. The decision marked the second time the Fed left the rate unchanged this year after having lowered it in measured steps from 5.25 percent in mid-2007 to the current level of just 2 percent.

Financial analysts had anticipated the Fed’s decision, and many expect the Fed to hold rates steady until at least the end of this year. That means rates on home equity lines of credit, deposit certificates and savings accounts may not change much, though other rates may be more volatile.

In its statement, the Fed said inflation may ease up later this year and next year, but the outlook remains highly uncertain. Slow economic growth could put pressure on the Fed to lower interest rates while inflation could prompt the Fed to increase rates. The Fed’s decision yesterday attempts to balance the risks of slower growth and the prospect of higher prices.

Borrowers who are shopping for a loan should keep in mind that the Fed doesn’t directly set the rates on home or auto loans, credit cards or other types of consumer debt. Instead, the Fed sets short-term bank rates that indirectly affect the rates consumers pay.

Want to save an easy $105 this year? If you’re an average consumer, that’s how much you could cut your annual finance charges if you improved your credit score by just 30 points, according to a new survey released by the Consumer Federation of America (CFA) and Washington Mutual Bank.

Boosting your credit score by a mere 30 out of several hundred points might be much easier than you’d think it would be. According to the survey, these five strategies may be among your easiest opportunities for improvement:

● Pay all of your bills on time and in full every month.
● Don’t max out, or get close to maxing out, the limits on your credit cards or revolving credit accounts.
● Pay off your debts, rather than transferring your balances from one account to another.
● Don’t open multiple new credit accounts all at one time or in rapid succession.
● Check your credit report annually and take action to correct any mistakes that might have been made.

The survey also found that in some ways consumers have become better-informed about credit scores in recent years. But in other ways, consumers still harbor misconceptions and misunderstandings.

With that in mind, here are a few important points to remember:

● Your credit score is based on your history of using credit and paying your debts. Your personal characteristics such as your income, age, marital status, home state, education or ethnicity have no effect on your credit history or credit score.

● You can improve your credit score by using credit responsibly. For example, your credit score can increase if you pay off a large credit-card balance, but decrease if you make a late payment on a credit-card or max out your limit on a credit-card.

● You’re legally entitled to a free look at your credit report (but not your credit score) once each year. If you also want to find out your score, you’ll have to pay a small fee. An exception occurs if you’ve been turned down for a mortgage loan or credit-card. In that case, you’re entitled to a free credit score as well.

The bottom line is that the more you know about credit, the better prepared you’ll be to use credit wisely–and that can be easier on your wallet.

The federal government is poised to enact a major housing bill that aims to assist first-time home buyers, homeowners who need to refinance their mortgage and an assortment of housing-related companies.

The House of Representatives has already passed the 694-page bill, which is now being heard in the Senate. President Bush has said he will sign the bill, which could be on his desk within a few days.

The details won’t be official until the ink dries on the President’s signature, but here’s a summary of several key points:

FHA refinancing program 
A new FHA loan program would be established to help struggling homeowners refinance their mortgage with a new 30-year, fixed-rate FHA loan.

To qualify, the homeowner must:

• have an existing mortgage originated before Jan. 1, 2008,
• be unable to afford the payments on that mortgage,
• have a mortgage debt-to-income ratio of at least 31 percent (or potentially higher),
• live in the home and
• meet a number of other requirements.

The homeowner’s current lender would have to agree to reduce the amount owed on the existing mortgage to no more than 90 percent of the home’s current market value.

Borrowers who want to apply for this program should first contact their current mortgage servicer and then an FHA-approved lender. Borrowers will have to pay a monthly premium for FHA mortgage insurance, be reasonably able to afford the payments on the new mortgage and share a portion of future appreciation in the value of the home with the FHA.

First-time home buyer tax credit
Home buyers who purchased a home on or after April 9, 2008, or before July 1, 2009, and had not owned a home during the previous three years would be eligible for a federal income tax credit of up to $7,500. The credit would have to be repaid over a 15-year-period and would be phased out for taxpayers whose adjusted gross income exceeds $75,000 (single filers) or $150,000 (joint tax return).

Higher loan limits 
The maximum loan limit for FHA-backed loans would be increased to 115 percent of the local-area median home price. The maximum loan limit for loans that could be purchased by Fannie Mae and Freddie Mac would be set permanently at $625,500. The Department of Veterans Affairs loan limit also would be increased.

New Fannie Mae, Freddie Mac regulator 
A new federal regulator would be created to oversee Fannie Mae and Freddie Mac. The government’s thinking is that a new tougher regulator would enhance Wall Street’s confidence in the two government-sponsored mortgage companies. That could indirectly result in lower mortgage interest rates, which would be an added benefit for home-loan borrowers.

© 1998 - 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

If you have an adjustable-rate mortgage (ARM) and are worried about the prospect of higher interest rates later this year, you might want to consider refinancing to take advantage of today’s still-attractive interest rates on fixed-rate mortgages.

If your ARM has already been reset or is scheduled to reset soon and your new monthly payment won’t be affordable, the decision to refinance your ARM may be simple. Yet the decision still should be made carefully since your mortgage is most likely your largest monthly expense.

In addition to the outlook for interest rates, other factors you should consider include:

• Your tolerance for risk.
• The interest rate caps on your current ARM.
• How long you intend to own your home.

If you refinanced your ARM today with a fixed-rate mortgage, you’d be protected from the possibility of higher interest rates and monthly payments in the future. That’s because a fixed rate means exactly that: The rate never changes over the entire term of the loan, be it 15, 30 or even 40 years. A 30-year fixed-rate mortgage originated today at 6.5 percent would still have that same 6.5 percent interest rate in the year 2038, when it would be paid in full.

Remember that refinancing usually extends the term of the loan, which results in a longer time–and more payments–until the loan is paid off.

Interest rates are already higher today than they were a year ago on 30-year and 15-year fixed-rate mortgages and most ARMs. The good news for borrowers, however, is that loan fees and points are lower, on average, than they were a year ago on some loan products.

Higher interest rates could be on the horizon if inflation, which refers to higher prices, forces the Federal Reserve to hike bank interest rates. The Fed doesn’t directly set interest rates on mortgages, auto loans or credit-cards, but its actions indirectly affect the general direction of rates that consumers pay.

Before you decide to refinance your loan, review your current ARM with your loan officer. Find out how much your interest rate and payment could increase and when each adjustment will occur. How comfortable–or uncomfortable–would you be if the worst-case scenario for your ARM came true? If that scenario makes you queasy, refinancing could be a smart way to protect yourself from that risk.

© 1998 - 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

If you’re ready to apply for a home loan, but are concerned that interest rates might go up before your loan closes, a rate lock might be just what you need.

A rate lock puts a hold on your interest rate for a set period of time, though you’ll still have to qualify for the loan to receive that rate.

If you expect your loan to close quickly and you’re willing to take a chance that interest rates might go up, a lock might not be important to you. But if there could be a delay before your loan closes or you couldn’t afford the loan if the rate went up, a lock might be a smart precaution. Ask your loan officer to help you weigh the pros and cons and decided when to lock your rate, if at all.

Some lenders will lock your rate when you submit your application. Others will float the rate until your loan is approved or even longer, unless you purchase a lock.

Don’t confuse a rate lock with a fixed-rate loan. A lock holds the rate while your loan is being processed. It doesn’t mean your rate can’t change after your loan is funded.

If you want to consider a lock, be sure to ask these questions:

● Does the lock apply to the interest rate and points?
A “point” is a fee that’s equal to 1 percent of the loan amount. Some borrowers “pay points” to reduce the interest rate on their loan. A lock should cover both the rate and points.

● When will the lock expire?
A typical rate lock is good for 30 days, but a longer or shorter period might be appropriate, depending on how soon you expect your loan to close. Most lenders charge a higher fee to lock your rate for a longer time. If you don’t want to take any chance that your rate might increase, err on the side of caution and get a longer lock.

● Can the rate float down?
One disadvantage of a rate lock is that if you lock your rate and then the interest rate goes down, the lender might not give you that lower rate. Some lenders allow a one-time float downward after the rate is locked.

If a rate lock is important to you, be sure to work with a reputable lender who will honor that commitment and process your loan in a timely manner. Insist that the terms of the lock be put in writing, and keep in close contact with your loan officer to make sure your loan will close before your lock expires.

© 1998 - 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.