ROANOKE TIMES
Copyright (c) 1995, Roanoke Times
DATE: Thursday, December 21, 1995 TAG: 9512210082
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: By MAG POFF STAFF WRITER
Most Virginia banks, following the major money institutions, cut their prime rate Wednesday by a quarter-point from 8.75 to 8.5 percent. Crestar, First Union, First Virginia, NationsBank, Signet and Valley banks lowered the rate. Maintaining 8.75 percent Wednesday were Central Fidelity, First American and NBC banks.
People with prime-related loans will pay a little less each month with the drop in rates, according to First Union Corp. economist David Orr, but "you're not talking about enough to cause anyone to buy a car."
Orr said home equity loans and credit cards are tied directly to the prime rate, so they will fall quickly for new and existing customers. Installment rates, unless they are variable, will drop only for new customers.
He calculated that someone with an outstanding credit card balance of $1,000 would pay $12.29 a month in interest at the typical six points over a prime of 8.75 percent. With prime at 8.5 percent and credit card rates down to 14.5 percent, Orr figured, the interest alone would be $12.08 a month, a saving of 21 cents a month.
With a balance on the card of $3,000, Orr said, the saving would be 63 cents a month, $7.56 a year.
Mike Hincker, manager of the Roanoke office of National City Mortgage Co., said mortgage rates responded slightly to the action of the Federal Reserve Board in forcing down interest rates. He said Wednesday's rate for a 30-year home loan was 7.5 percent with no points and no origination fee or 7.25 percent with no points and a 1 percent origination fee.
But Hincker said those terms were about equal to rates late last week and early Monday. Mortgage prices rose Tuesday in anticipation that the Federal Reserve would not lower its interest rates.
Christine Chmura, an economist with Crestar Bank in Richmond, said loan rates will trend downward in the coming weeks. She said the money markets are responding to a belief that the federal budget standoff will be resolved as well as to the lower rates.
On the other side of the picture, she said, rates on Treasury securities also will fall, along with rates that banks pay on deposits.
Chmura predicted the Federal Reserve Board will keep easing rates. She said this is because the board believes inflation is under control. The board also wants to stimulate the economy after what most observers believe will be a slow Christmas selling season for retailers, she said.
Orr also said he thinks rates will continue to fall. He is looking for a total cut of three-quarters of a point by summer, with three separate quarter-point reductions.
The board will meet again Jan. 30, but Orr said that's too soon. He anticipates another quarter-point drop at the board's meeting March 26.
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