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July 2, 2019

 

The Prime Lending Rate – sometimes just called “Prime”  – is the interest rate that banks charge each other for overnight loans. Some consumer rates – like ARMs – are set in relation to Prime.

In the US, Prime is affected by the Federal Reserve lending rate to banks; historically, Prime is about 3 percent above the Fed rate.

The video shows  an example.

  • The Federal Reserve loans to Bank A at 1%
  • Bank A loans to Bank B at 4%
  • Both banks – A & B – will recalculate variable-rate loans like ARMs on that 4% Prime figure.

ARM rates are frequently defined as “% above Prime” – that gap is usually called the “margin” or “spread.” Just remember those 3 layers in Prime: Federal Reserve Bank A Bank B And finally, YOUR rate.

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About the author 

JohnGiammarco

JohnG has been a licensed Real Estate professional for over 20 years in three separate states. He has a master's degree in business and has to many personal real estate transactions to count. With this much experience it's safe to say JohnG knows a thing or two about how to sell a home. He is dedicated to helping homeowners discover the truth about the real estate industry and the COMMISSION LIE, many agents and brokers perpetrate in order to earn an income at your expense.  He says "if your paying a commission to sell your house your paying way to much!"

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