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What Is Prime_

What Is “Prime”?

What Is "Prime"? Unlimited Mortgage Lending
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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