Markets & Economy

The 2 rules of prime mortgage rates

Help clients leverage investments while protecting them, too
  • Know what prime is, and never borrow a lot of money at a prime rate for very long.

Rule one: Know what prime is The “prime” rate sounds cool, especially when offered to you. “You are such a good customer... Your credit is sooo good....” Yadda, yadda. Until the late 1980s, prime was cool, defined as “the rate offered by banks to their best corporate customers.” The prime rate offered by banks was the result of calculating their cost and availability of funds, and prime rates could vary from bank to bank. But, by the end of the '80s, top corporate customers stopped using banks except as conveniences -- our evolving financial system gave them direct access to credit markets by selling securities. By 1990 prime had become a benchmark, and more a marketing term than an accurate description. The best customers borrowed under prime, usually a fixed negative spread. [graphiq id="dUOOxu2fP0N" title="Bank Prime Loan Rate" width="600" height="523" url="https://w.graphiq.com/w/dUOOxu2fP0N" link="http://time-series.findthedata.com/l/57842/Bank-Prime-Loan...