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Indexes (Indices) for Rates of Interest

As borrower, your rate of interest frequently is based on an index (that rises or falls) plus a margin (usually a constant %).

All indices move in sync just because money is a global commodity.

  1.   Federal Funds Rate:  Set by the Federal Reserve's Open Market Committee, this is the rate which member banks
  2. charge for short term (usually overnight) loans. A lowering of the rate increases the availability of credit because it

    becomes cheaper.

  3.   Wall Street Journal Prime:  This is the base rate on corporate loans posted by at least 70% of the 10 largest banks in
  4. the US. Although there is no legal link, historically this Prime is 3% higher than the Federal Funds rate. Currently,

    Federal Funds Target Rate is 0% to .25% and the Prime is 3.25%. Most home equity lines of credit (Heloc) are indexed

    to this Prime.

  5.   LIBOR (London Inter-Bank Offered Rate):  Average rate for dollar denominated deposits among major banks in London.
  6. Quoted for 1,3,6, & 12 months, the one month LIBOR has ranged from .38% to 9.125% and the 12 monthfrom 1.2 to

    9.4% since September 1989.

  7.   Cost of Funds Index (C.O.F.I.):  One of the most widely used is that of the 11th Federal Home Loan Bank District in San
  8. Francisco. Usually lags the market and is relatively stable.

  9.   Treasuries:  Rates for short term obligations (bills) and long term (bonds) are available on the Internet at
  10. <moneycafe.com>. Advantages of a 3 or 5 year term is known debt service.