LIBOR vs. Prime?

Question

Considering taking a loan. Your advice would be to take a loan with LIBOR + something interest rate or PRIME + something? What rate is more likely to raise during repayment period?

Answer 1

Libor is lower and a function of prime.

Answer 2

The thing to compare would be after the +. While LIBOR is usually lower than Prime, LIBOR + 20% is much higher than Prime + 1%.
You can use http://www.banx.com to see what the Prime and LIBOR rates right on their main page. There are a number of LIBOR rates, based on time periods (such as 1 month, 3 months, 1 year, etc.) so make sure that you are getting the right number.
The Prime rate tends to move in lock-step with the Federal Funds Rate, as set by the Federal Reserve, call "The Fed". From the current press, the Fed Rate is most likely to go down by .25% in the next 3 months, or at most stay the same. The LIBOR, I don't know as much about, because it's the London Inter-Bank Overnight Rate, and doesn't get as much American press. I don't think it moves as lockstep, but rather fluctuates on a daily basis. Since it's tied to English rates, I would anticipate it to go up, since I believe that the Bank of England (their Fed) is currently increasing rates, because their economy was lagging slightly behind the U.S. in recovering from the 2001-2003 downturn.
If you had LIBOR+4, and Prime+1, so that they were about the same rate today, I would recommend Prime.

Answer 3

The LIBOR (London Interbank Offered Rate) is the British cousin of Prime. It is the rate that banks base loans overnight to other banks. There is a one month libor and is it goes up from there. Current LIBOR rate is in mid 5% range depending on term. Prime is 8.5% and really all you can say about it. More options with LIBOR. Prime is really only tied to equity lines. Many lenders have arm products with fixed term periods tied to LIBOR. Historically libor trails behind prime. One last thing, when looking at a product that is tied to libor, or any other index for that matter, you need to look at both the index rate and the margin, which is the bank markup. Add the two together to get your note rate. Some banks charge higher margins than others, with the average being anywhere from 2.25% to 2.75%

Answer 4

It depens on you trem, mostly Prime does not have a fixed time, but it may have a teaser rate like prime -1 for 3 months. A libor is mostly has a fixed time like 1 year 3year or 5year. So take a look at that. But Libor is better then prime 75% of the time.

Answer 5

are you taking a home equity loan? these offers will be based on Prime. If you are getting a regular home loan ARM product, it will be based off Libor or the treasury most likely... and not the Prime.
Libor based arm's are great on the first, and prime based lines of credit are great on a second mortgage.