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Old 02-07-2019, 10:38 PM
bankworking bankworking is offline
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Join Date: Feb 2009
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Quote:
Quoth MadMike View Post
Wow, up until you mentioned the 4% floor, I thought maybe he was gambling on the rates going lower than what he was currently paying. I can't even being to wrap my head around this. Then again, when I was in the process of buying a house, I insisted on a fixed rate. I avoided anything with a variable rate like the plague.
Really wouldn't matter if we had a 0% floor.
The 7% variable rate is based on the Federal Prime rate, (currently 5.5% APR) plus 1.5%.

The Federal prime rate is 3% above the rate that the Federal reserve lends to banks.

So, when the Prime rate was at 3.25% (all time low), the lending rate was 0.25%.

Even if the federal reserve made lending rates 0%, a Prime + 1.5% rate would still be 4.5% APR.

Not saying that someone won't someday change how Prime is determined, but basically, this loan would never go under 4.5% APR, floor or not. The floor is really more of an possibility with lower margin loans, (only offered at lower loan-to-values).