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Facts About Prime Rate

Prime rate is one of the most referenced terms throughout the banking and lending industry. It represents the interest rate that the majority of banks charge their most prominent and creditworthy clients, and it affects what your mortgage rate will be like.

While the prime rate is not adjusted frequently or on any regular basis, it historically runs at approximately 3 percent above the interest rate banks charge each other (known as the Federal Funds Rate). The prime rate is often used for the calculation of:

  • Second mortgages and other variable-rate loans
  • Private student loans
  • Some credit cards

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