Are you thinking about buying a home? Now is certainly a good time to do it, what with home values in free-fall all over the country. Foreclosures abound, in both high-end neighborhoods and otherwise, and there are definitely a lot of deals out there. If there were ever a true buyer's market, this is it. When you do decide to buy a new home, you're going to need a mortgage (that is to say, unless you have a cool couple of hundred thousand dollars lying around), and there is a very good chance that the bank (or credit union, or other lending institution) is going to charge you an interest rate that is influenced by the prime. The prime rate is one of the most important and best-known indexes used by financial institutions to set interest rates.
The prime rate, also known as the prime lending rate, is based on the federal funds rate. The federal funds rate is the rate that banks charge each other for borrowing money. Why do banks borrow money from each other? Because they are required to keep a balance with the Federal Reserve, and if they are short they borrow from each other. The interest they charge on each other's loans is set by the Federal Reserve Board. So, this is what the prime rate is based on. The best-known prime rate index is the Wall Street Journal Prime Rate, published in that famous paper. When the prime rate goes up or do, so could your interest, if you have an adjustable rate mortgage. If you have a fixed-rate mortgage, the rates you can choose from at the time of your loan will be influenced by the prime rate.
To learn more about the prime rate, the Wall Street Journal Prime Rate, adjustable rate mortgages, fixed rate mortgages, and any other aspect of the home loan industry, be sure look for more articles on Go Banking Rates and also speak with a mortgage professional.
