Prime Rate Definition

The prime rate is a putatively national interest rate charged for standard mortgages and other loans. The prime rate should theoretically be the same rate among all financial institutions, but in the modern market there is some variance. The prime rate usually is about 3% above the federal funds rate. In the US, the prime rate most-often refers to the Wall Street Journal Prime Rate, though specific uses may utilize another indexed source. Most adjustable rate mortgages (ARMs) are linked directly to the prime rate index.