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You are here: Home / Mortagage Tips / Video: What Is a “Prime” Rate?

Video: What Is a “Prime” Rate?

January 29, 2016 by Nosari Home Mortgage, Inc.

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

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

Chris Nosari


Nosari Home Mortgage
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Mountain Home, AR 72653
Phone: 870-425-8351
Fax: 870-425-8353
NMLS: AR #136034 | MO Lic #2358
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