A Simple Guide to Mortgages, Home Equity, and Credit Cards
The Federal Reserve — often called “the Fed” — sets the federal funds rate, which influences the entire financial system. When this rate goes up or down, it affects how much banks pay to borrow money. In turn, those changes trickle down into the rates consumers see on everyday products like mortgages, home equity lines of credit (HELOCs), and credit cards.
Why do federal interest rates matter? Understanding how federal interest rates work — and how they affect borrowing — can help you make confident decisions about buying a home, refinancing, or paying down debt.
How a Federal Rate Cut Impacts You
When the Fed lowers the federal funds rate, it becomes less expensive for banks to borrow money. Many lenders pass along those savings by reducing interest rates on loans and credit products.
For consumers, this can mean:
- Mortgages may become more affordable if you’re buying a home or refinancing
- HELOCs may offer lower borrowing costs
- Credit cards with variable rates may adjust downward, reducing the interest you pay on balances
Not every product changes overnight, and the impact can vary by lender, but overall, a rate cut is designed to make borrowing more affordable and support economic growth.
Mortgages: New Loans and Refinancing
Buying a home or refinancing? Even small changes in interest rates can make a big difference in affordability.
What you need to know:
Buying a home is one of the biggest financial steps most people take. Even a small change in interest rates can significantly impact your monthly payment and the total cost of your loan.
What you can do:
- If you already have a mortgage with a higher rate, refinancing could help you lower your payment or shorten your loan term
- If you’re shopping for a home, comparing rates and talking with lenders early can help you understand what fits your budget
- Look at the full picture — fees, terms, and repayment options — when choosing a mortgage provider
Quick Tip: Even a 1% difference in mortgage rates can change your monthly payment by hundreds of dollars — use our Mortgage Payment Calculator to see how much you could save.
Ready to apply? Get started online.
Home Equity Lines of Credit (HELOC)
Your home’s value can be a powerful tool — a Home Equity Line of Credit (HELOC) can help you tap into that investment when you need it most.
What you need to know:
Your home equity can be a powerful financial tool. A HELOC lets you borrow against your home’s value with flexibility — you can draw funds as you need them. Some HELOCs also give you the option to lock in a fixed rate.
What you can do:
- You don’t need to use the funds right away; once approved, a HELOC is typically available for up to 10 years
- It can be a smart way to finance renovations, consolidate debt, or cover unexpected expenses
- Consider whether a variable or fixed rate works better for your situation
Did you know? With a HELOC, you only pay interest on the funds you use – not the total credit line available to you. Explore your options with our HELOC Rate and Payment Calculator.
Credit Cards
From everyday spending to balance management, interest rate changes can affect the cost of carrying credit card debt.
What you need to know:
Changes to federal interest rates can affect credit cards, especially those with variable rates. The exact impact depends on your card issuer and your personal credit profile.
What you can do:
- If you carry a balance, a lower rate may reduce the interest you pay — but it’s still important to pay down debt as quickly as possible.
- Compare cards to find one with a lower rate or benefits that match your lifestyle.
- Consider debt consolidation with a HELOC or a personal loan if you want to simplify payments and potentially save on interest.
Quick Tip: Carrying a balance month to month? Even small extra payments above the minimum can save you significantly in interest over time. Use our Lending Calculator to see what consolidation could look like for you. Or, explore M&T credit cards to find one that earns rewards or helps rebuild your credit.
Frequently Asked Questions
Have questions about how interest rates affect your money? Here are some of the most common ones we hear from customers.
Is it better to refinance when interest rates drop?
Refinancing when rates are lower may reduce your monthly payment or help you pay off your mortgage faster. The best choice depends on how long you plan to stay in your home and the overall costs of refinancing.
How does a HELOC compare to a personal loan for debt consolidation?
A HELOC offers flexibility to borrow against your home’s equity as needed. A personal loan provides a lump sum with fixed monthly payments. The right option depends on your equity, your comfort with using your home as collateral, and whether you want flexible or fixed terms.
Do credit card interest rates always change when the Fed lowers rates?
Not always. Many credit cards have variable rates tied to the federal funds rate, but changes can vary by issuer and other factors.
How much can a change in interest rates affect my mortgage payment?
Even a small shift in rates can change your monthly payment by hundreds of dollars over the life of a loan. Use our Mortgage Calculator to see how different rates could impact your budget.
When should I use home equity instead of refinancing my mortgage?
If you want access to funds for a specific expense — like a renovation or debt consolidation — a HELOC may make sense. If your goal is to lower your overall mortgage payment or change your loan terms, refinancing might be the better choice.
We’re here to help
Federal interest rates affect more than just banks — they influence your everyday financial decisions. Whether you’re planning a major purchase, refinancing, or managing debt, M&T Bank is here to help you navigate your options.
Explore our Financial Education Center for tips on saving, borrowing, and planning for life’s milestones.
Have questions? Contact us — we’d love to talk through your options and help you take your next step with confidence.
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This content is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.
All loans and lines of credit and all terms referenced are subject to credit approval and other conditions. Other terms, conditions, fees and restrictions may apply.
If you choose to apply for a mortgage loan, you will need to complete our standard application. Our consideration for approval of your mortgage loan application will include verification of the information obtained in connection with your request, including but not limited to income, employment, asset, property value and/or credit information. Our loan programs are subject to change or discontinuation at any time without notice. Not all products are available in all states. Refinancing to reduce total monthly payments may lengthen repayment term or increase total interest expense. If you are a service member on active duty looking to refinance your mortgage loan, please consult your legal advisor regarding whether your existing mortgage loan is eligible for benefits under the Servicemembers Civil Relief Act and how a refinance may impact those benefits. Interest rates are subject to change without notice.
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