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How To Follow The Prime Rate

[Jun 5, 2009.]


Most Home Equity Mortgage Loans have interest rates tied to the Prime Rate.  A Home Equity Loan may have an adjustable interest rate.  In most cases, that interest rate can adjust every month.  Which means you should keep track of what the Prime Rate is doing. By keeping track of the Prime Rate you will know if your monthly payments will increase or decrease from month to month.

There is a strong correlation between the Prime Rate and the Fed Funds rate.  Often the Prime Rate is about 3% over the Fed Funds Rate.  The Fed Funds Rate is very often in the news.  When you hear on TV or radio about the Federal Reserve raising or lowering interest rates, they are almost always referring to the Fed Funds Rate.  Whatever the Feds are targeting for their rate, you can count on the Prime Rate being 3% higher.  Today, because of economic concerns, the Feds are targeting their Fed Funds Rate at an all time historic low.  Effectively it is about .250%.

Once the economy starts to recover, the Feds will likely begin to move their target rate higher to prevent inflation.  The target rate that is set at historic lows now, will not continue forever.  Therefore, look to the future and prepare for a time when your Home Equity Loan payment will increase. 

Be prepared for a healthier economy.  For example from July of 2006 to September 2007 the Prime Rate was set at 8.25%.  That is a full 5.00% higher than it is today.  Think about what that might do to your Home Equity Loan payment and your overall budget.  Keep in mind that the larger the balance on Home Equity Loan the larger the percentage of increase will effect your payment. 

You can find out how the Feds are setting their target rate, or check the Prime Rate at several reliable websites.  Use one of the links below or just type Prime Rate in a search engine such as Google or Yahoo.

If after doing your own checking around you still need some help understanding how your Home Equity Loan might adjust, you can always contact the bank to whom you are making your payments.  Try the customer service number on your monthly statement and have your loan account number ready. 

The most important thing is that you understand that the payment may go up in the future as the economy changes.  Always be aware and prepared when you are managing your greatest asset- your home.

To check the Fed Funds Rate: http://www.moneycafe.com/library/fedfundsrate.htm

To check the Prime Rate: http://www.moneycafe.com/library/primerate.htm

About the Author:  Tiffini Anderson is a Certified Mortgage Planning Specialist working for PrimeLendng in Reno, NV.  She has eighteen years of mortgage lending experience.  You can reach her through her website  www.renoloanlady.com


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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