The Federal Reserve Bank raised the short-term Fed Funds rate for the 16th time in a row. It now stands at 5 percent.

Anyone on a fixed income is probably pretty happy. It’s easy to find a money market account paying above 4 percent, and there are other safe investments earning more than that.

But if you’re borrowing money, you’re either heading for trouble or in over your head. Most home equity lines of credit (HELOC) are based around the prime rate, which banks and lenders started raising from 7.75 percent to 8 percent. If you have a great rate on your HELOC, it’s probably one percentage point below prime, which means you’ll be paying 7 percent on your money. But some folks are paying prime or half a point above prime, which means your interest rate could be approaching 9 percent soon.

Sure, we’re a long way away from the peak of prime interest rates, which rose to 21 percent in 1980. But to folks who have been used to paying 4 and 5 percent for home equity loans and lines of credit, this has got to hurt. And it’s not only home equity loans that have risen — credit card interest rates have jumped up as well. (Back in 1980, the average American family didn’t carry $9,300 in credit card debt.)

So what is the rising cost of cash doing for folks who are planning home improvement projects this summer? Are you thinking about cutting back on your home improvement projects until the interest rate comes down again? Are your forging ahead anyway? According to the National Association of the Remodeling Industry (, most Americans are going ahead with long-planned home improvement projects.

On my show this Sunday, I’ll talk about the cheapest ways you can borrow funds for home improvement projects. I hope you’ll tune in.

May 11, 2006