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Loan Type Mortgage Refinance
Debt Consolidation
Home Equity Loan or Line
New Home Loan

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What is the Prime Rate?
The prime interest rate is what banks charge their most favored customers -- typically large corporations with excellent credit ratings. The prime rate is based on the Federal Reserve's Federal Funds rate. But what is the Federal Funds rate? It is the rate that banks charge when they lend each other money. It works like this: banks' needs for cash fluctuate as their customers deposit, withdraw, and borrow funds. To cover those needs, banks with extra reserves lend them out overnight to banks that require more funds. The Federal Reserve Bank controls how much money is available and how much has to be kept back, or "on reserve," and available to depositors. When you hear that "the Fed" has "lowered" interest rates, it simply means that the Federal Reserve Bank is using its power to drive that overnight lending rate down.

When the Fed lowers its rate the prime rate drops also. But what does that mean to people with mortgages? It depends. An existing fixed-rate mortgage (FRM) will not change. Even if you have the option of making interest-only payments, they don't change because your rate remains the same. But does lowering the prime rate affect the rates on a new FRM? Not generally. Fixed rate mortgage rates are determined by bond markets, which have little to do with the prime rate. In fact, rates on fixed rate mortgages often increase when the Fed lowers its interest rate.

Rates on Home Equity Lines of Credit (HELOCs) are tied to the prime rate and do drop when the Fed lowers interest rates. And often adjustable rate mortgages (ARMs) follow changes in the prime interest rate as well. A look at historical 5/1 and 1 year ARM rates shows that they follow changes to the prime rate much more closely than fixed rate mortgage rates do. Those with interest-only payment options may be able to make a lower payment than before. And borrowers with HELOCs, especially those who make interest-only payments, should be able to pay less when the prime rate drops.

To summarize:
  • When the Federal Reserve lowers interest rates, the prime rate drops too.
  • The prime rate is what banks charge their best customers.
  • When the prime rate drops, ARM rates may decrease.
  • When the prime rate drops, HELOC rates will decrease.
  • Existing fixed rate mortgages do not change.
  • New fixed rate mortgage rates may move higher.
Today's Prime Rate
The Prime Rate has long been a benchmark for many of today's home loan programs such as home equity lines. Today's prime rate is listed below and updated daily.

 
 
 
 
 
Interest Only Loans
An Interest Only Loan is a mortgage program with an option to make interest only payments for a pre-defined period of time.  Both adjustable and fixed rates are available.
 
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Fixed Rate Loans
The most popular home loan is the Fixed Rate mortgage providing the consumer with a guaranteed interest rate and a fixed payment for the entire term of the loan.
 
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