What is in a Word?

in Bank, Bank Rates, Banks, Interest Rates

Prime? What’s Prime?

I had an interesting discussion with a fellow personal finance blogger @investingthesis (on Twitter), about Mortgage rates and he was pointing out that a lot of the banks are lowering their Mortgage Rates, which is great news for those folks looking to renew their mortgages, or buying a new house.

I pointed out to him that the Line of Credit that I have for my house’s rate is not going to drop. He commented to me that it might in a while, but I pointed out that a Secured Line of  Credit’s interest rate is set to the “Prime“, but don’t get confused it is not the Bank of Canada Prime rate.

Wait a minute, you think, how can the word Prime mean two different things with banks? Simple, it is the Bank’s  (not Bank of Canada) PRIME rate, of course if they called it their Best Rate that might be confusing, so Prime is less confusing for folks, isn’t it?

A dictionary would give us this interesting definition of Prime:

of the greatest relevance or significance

Which is interesting too, thus your Prime Rate would be your Most Relevant Rate as well, however another definition is also:

first-rate

So that would make the Bank’s Prime Rate a First-Rate Rate? You could say this was their First Rate Squared, which would even sound better to a lot of the consumers out there, wouldn’t it?

It is easy to get fooled or confused by the Consumer Bank’s using the same terms as the Bank of Canada does, and I am sure there are a few folks who have been tripped up by this, so it never really does hurt to ask anyone in a Bank, “What do you really mean by that term?”. It allows you to understand their definition, so you don’t make assumptions that might cost you money later.

{ 3 comments }

  • Credit Cards October 5, 2010, 10:49 AM

    Common sense Prime lending rates are best rates banks are offering but you may get a higher deal depending upon your background.

    Reply
  • Leo Lee September 30, 2010, 5:58 PM

    Since when has the BoC called its over-night rate ‘Prime’ anyway? Who is confused? It is called the trend setting rate. That’s the rate chartered banks can borrow from the BoC on an over-night basis – heaven forbid if that ever happens. The Boc over-night credit facility for chartered banks is to keep the Canadian banking system liquid and meet the depositors’ demand for their money – i.e. avoiding runs on banks.

    Reply
  • Dd September 29, 2010, 12:33 PM

    This is news to me! Thanks for the heads up.

    Reply

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