This just gets me. Gets me bad.
I do understand that it is my job to know this stuff. But it continues to amaze me how many clients will call me and ask me about a refi because the Feds lower "rates" again. People, people. Here is your lesson for the day:
Prime is the index most commonly used for short term loans. For example, car loans, credit card interest rates, etc. Prime is calculated by adding 3% to the Fed Funds Rate. The major lending institutions borrow from the Government, and guess what they are looking at? The Fed Funds Rate.
Long term interest rates are based exclusively on Mortgage Backed Securities (MBS) or Mortgage Bonds. Not Prime. MBS's are traded on Wall Street just like stocks. In fact, stocks and bonds are competing for the same investment dollars. So a good day on the stock market, usually is a bad day on the Bond market (bad for Interest Rates). Additionally, any loan originator that is watching the T-Bill, Prime or any other index, is watching the wrong indicators, and is thus giving you inaccurate advice. Run! Don't walk, from that "professional".
