Kevin P. Nguyen

Equity Zone Mortgage-Elk Grove, California

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Video: What Is “Prime”?

January 29, 2016 by Kevin P. Nguyen

What Is “Prime”?

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.

What Is Prime

Filed Under: Mortagage Tips Tagged With: Mortgage Tips, Video

Kevin Nguyen

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800.815.1945 ext. 3624
916.469.3624 Direct
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925.759.3376 Mobile/Text Messages
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