Can someone explain Prime rate for mortgages
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thanks for the information & correcting me
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i..........rock........!!!!!
Hey dude,
That's Ok. I apologize for misunderstanding ur que. but I think our friend 'investpro' has rightly explained everything.
Cheers!
Quote:
Originally posted by dudewheresmycar
Sorry sanjeev , u have misunderstood my question.
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Quote:
Originally posted by dudewheresmycar
Where did the 1.75 come from.. Is this based on some statistical analysis..
It believe it is the nominal profit of the bank...universally accepted by all and adhered to by all banks. But they make exceptions to case like your when they offer prime - 0.95..they are only making 0.8% margin.
I hope I am correct.
Hiren
The bank margin is usually more than that that is why they can afford to lend at .95% below the prime. Normally it is like 100% for the banks.
Location: carl sagan's universe
Posted on: 04-09-08 22:29:33
Quote:
Originally posted by dudewheresmycar
Great explanation "investpro" u personify ur name
Quote:
Usually the prime rate of banks - which is a benchmark to guage at what rate they should lend money to their clients - is prime+1.75% in Canada.
Where did the 1.75 come from.. Is this based on some statistical analysis..
Thx the puff piece.
don't really know where the 1.75% came from. have sent out feelers and will reply asa I get a reply, if i get one.
Location: carl sagan's universe
Posted on: 04-09-08 22:43:53
here is an article that says that since 1997 the banks prime has been 1.75% over the key lending rate but nothing about it being regulated by law.
http://www.bloomberg.com/apps/news?pid=20601082&sid=aksyOq2M5z4o&refer=canada
As far as I understand, the word prime rate was actually derived from a practice that banks followed - it signified the rate at which the prime (best) customers of that bank would get a loan. This was my understanding when I was working in Singapore and the link below proves the same:
http://www.abs.org.sg/faq-intrates.htm" target="_blank">http://www.abs.org.sg/faq-intrates.htm</a>
However, in practice, that does not seem to happen. Years ago, there used to be banks which did not have a single customer whom they were ready to provide the prime rate - because they did not find any customer who satisfied all their conditions of being the ideal client. So even though they had a best customer (someone has to be best even if everyone is bad!!!), they never provided a prime rate to anyone.
However, in Canada, I found that prime rate was not used in the traditional meaning because it offers loans at prime minus.
But yes, prime rate basically covers their cost which comprises of two elements - bank's own cost of money and their average overheads cost, plus a profit margin which they consider as minimum return required.
However, even though the above equation may give different figures for each bank (due to different cost structures of overheads and different appetite for profits), as investpro has mentioned, due to competiton, every bank sooner or later (the time gap being a few hours to a couple of days usually) comes down to the same figure.
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Chandresh
Advice is free – lessons I charge for!!
