Scott Kinne First Heritage Mortgage

Scott Kinne's Mortgage information Blog

  • About Scott
  • Testimonials
  • Resources
    • First Time Home Buyer Tips
    • First Time Home Seller Tips
    • Closing Costs
    • Home Appraisal
    • Home Inspection
    • Affordable Credit Repair
    • Interest Rates
    • Loan Programs
    • Loan Process
    • Loan Checklist
    • Mortgage Glossary
    • Mortgage FAQ
  • Main Website
  • Contact
  • Apply

The Fed Sets The Fed Funds Rate Sets Prime Rate

March 21, 2007 by Scott Kinne

This afternoon, the Fed adjourns after a two-day meeting and it is widely expected that they will leave the Fed Funds Rate unchanged at 5.250%.

So, what is the Fed Funds Rate and why does it matter to everyday people?

The Fed Funds Rate matters to you and me because it is used to calculate Prime Rate, a popular consumer interest rate used for credit cards and home equity lines of credit.

And why is it called “Prime Rate”?

That’s because banks are smart.

Banks know that if Prime Rate was called something like “Consumer Loan Interest Rate”, we would all have our guard up. Instead, it’s named “Prime Rate” and that makes us feel warm and fuzzy. “Prime” is a strong word with a positive connotation.

It’s important understand, though, that when the Fed makes changes to the FFR, it directly impacts Prime Rate; the two move in lock-step.

Prime Rate is always 3.000% higher than the Fed Funds Rate.

For example, in June 2004, the FFR was 1.000% and Prime Rate was 4.000%. Since that date, however, the two have increased to today’s levels of 5.250% and 8.250%, respectively.

Because of the increase, credit card balance-carrying Americans have faced a 4.00% APR increase and homeowners with home equity lines of credit have watched their HELOCs more than double in payment.

The Fed is widely expected to leave the Fed Funds Rate unchanged today, but may provide clues about the future path of the benchmark rate. Any hints that the FFR will be lowered should provide a boost to the housing market.

Of course, the opposite is true, too. If the Fed cites economic strength and that FFR may have to be increased, it should have a detrimental effect on housing.

Filed Under: Uncategorized

Scott Kinne

Contact Scott

Vice President, Senior Loan Officer
NMLS ID #182351
Office: 703.293.6146
Mobile: 571.237.6241
Fax: 571.317.2478
skinne@fhmtg.com

Licensed In Maryland, Virginia, Washington D.C., West Virginia
  LOAN APPLICATION
  FREE RATE QUOTE

Connect with Me!

Sign Up For My Free Newsletter

Categories

Recent Posts

  • 3 Things That Will Absolutely Kill Your Chances for a Mortgage Approval
  • Mortgage Interest Rate Versus APR: What To Know
  • Navigating A Market With Higher Interest Rate
  • Understanding Mortgage Pre-Approvals and How to Avoid Being Declined for One
Equal Housing Lender
nmlsconsumeraccess.org
First Heritage Mortgage, LLC, Company NMLS ID #86548

Our Location

3201 Jermantown Road
Suite 800
Fairfax, VA 22030
Business: 703-293-6146
Cellphone: 571-237-6241

Copyright © 2023 · Powered by MySMARTblog