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Prime Rate – Two Parts Make Up A Whole Lot Of Interest
The quest to find the best prime rate on a loan is like finding the Holy Grail. Many homebuyers desire the prime rate. But, for one reason or another, a non-conforming rate is their only option. Qualifying for a prime rate depends on the buyer's proof of other factors such as down payment, credit score, and debts. A reliable mortgage broker will explain ways you can qualify and fulfill the American dream. Other industries that use prime rate include auto loans, credit cards, and personal loans.
What Is The Index?
A prime interest rate is composed of two parts: Index plus Margin. The Index is a percentage that is tied to bonds with a settled maturity. Of course, the riskier the bond is, the better the return. Ask your mortgage broker which index his lenders use. You can trace an index's stability online or in the Business section of many major newspapers such as the Wall Street Journal. A common prime rate uses an average of the going Indexes. The most frequently used indexes are CODI (Cost of Deposit Index), COFI (Cost of Funds Index), LIBOR, and Treasury bills.
What Sets A Margin?
The other important part of a prime interest rate is the margin. The margin is a percentage tacked on by a broker and lender. This percentage is somewhat flexible, thus negotiable. Margins cover the broker and banker's cost to do business, plus a little profit. In today's market, the margin floats around 2%.
The Finest Prime Rates
Today's prime rates are at a low compared to the past 20 years, according to Bankrate.com and Mortgage101.com. During recent months (July-September 2004), prime rates appear to have flat lined and crawled up slightly. Of course, the prime rate fluctuates according to the market and global environment. Most adjustable rate loans carry a prime rate. According to Bankrate.com, the going WSJ prime rate is 5.000%.