What is Prime Interest Rate?

by Colleen Gerke

The Federal Reserve has raised interest rates 10 times in a row to combat high inflation. In a surprise move this week, the Fed signaled that it may raise rates twice more this year, beginning as soon as next month. With interest rates in the news so much lately, do you know what the Prime Interest Rate is?

The Prime Rate is the interest rate that banks charge their most creditworthy customers. It is often used as a benchmark for other interest rates, such as mortgage rates and credit card interest rates. When the Prime Rate goes up, it can make it more expensive to borrow money. This can impact your ability to afford a home mortgage, a car loan, or other types of loans.

Here are some key things you need to know about the Prime Rate:

The Prime Rate is set by the Federal Reserve, but it is not directly controlled by the Fed. Instead, the Prime Rate is based on the federal funds rate, which is the interest rate that banks charge each other for overnight loans.
The Prime Rate is typically about 3% higher than the federal funds rate. This is because banks need to make a profit on the loans they make, so they add a margin to the federal funds rate.
The Prime Rate can change frequently, so it is important to stay up-to-date on the latest rates. You can find the current Prime Rate on the websites of many banks and financial institutions.

If you're concerned about the impact of rising interest rates, you may want to consider refinancing your existing loans or locking in a fixed-rate loan. Refinancing can help you get a lower interest rate on your loan, which can save you money in the long run. Locking in a fixed-rate loan can protect you from rising interest rates in the future.

If you have any questions about the Prime Rate or how it may affect you, you should speak to a finance or mortgage advisor. They can help you understand your options and make the best decisions for your financial situation.

Partnering with the right mortgage advisor is key, and it’s important to work with professionals you trust. If you need assistance finding a lender, please reach out to me at (904) 866-1211 or colleen@closewithcolleen.com. I'd be happy to connect you with a reputable mortgage advisor in our Fernandina Beach and Amelia Island, Florida area.