How do mortgage companies give you loans for under Prime rate?

[Argo]

Educate me please - the prime rate currently is 8.25%. Yet most mortgages average in the 5.5 - 6.5 percent rate. I always thought that most interest rates were slightly above prime...

 

[alkemyst]

Originally posted by: Argo
Educate me please - the prime rate currently is 8.25%. Yet most mortgages average in the 5.5 - 6.5 percent rate. I always thought that most interest rates were slightly above prime...

Prime rate is a term to refer to the rate given foe loans to the 'prime' customers.

Without knowing the points and fees associated with the 5.5-6.5% loans they may very well be over prime.

Also banks are lending on money they borrowed already so with rates going up they can afford to lend for less than 'prime' and still profit.

 

[Vic]

Prime rate is for short term borrowing, i.e. credit cards.

Mortgages are long-term loans, and their rates are derived in part from the yields on long-term bonds, particularly the 10 year Treasury note, currently 4.8%.
However, to clarify (because otherwise someone will flame), like the Prime, this does not represent the actual cost of funds itself, but the manner from which it can be derived.

 

[puffff]

Originally posted by: Vic
Prime rate is for short term borrowing, i.e. credit cards.

Mortgages are long-term loans, and their rates are derived in part from the yields on long-term bonds, particularly the 10 year Treasury note, currently 4.8%.
However, to clarify (because otherwise someone will flame), like the Prime, this does not represent the actual cost of funds itself, but the manner from which it can be derived.

Credit cards debt also do not have any collateral backing it. Mortgages have the value of the house as collateral, hence it it less risky and can be issued at a lower rate.

 

[mrrman]

they get you in low...take a bit of a loss then jack the crap out of the rates....

 

[Greenman]

I thought prime rate was the interest rate charged by the fed to banks and such?