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Ever wonder what the heck they’re talking about when you go to buy a house, lease a car, finance some other sort of purchase or get a loan? You’re presented with a gobbley-gook of terms, PR, FHMR, HRL, FDR, COFI. But what the heck are they? And what do they mean for me?
This alphabet soup is the rate at which you’re being screwed. Think of it this way — you go to a whorehouse and there’s a schedule. You want a quickie, you want full service, you want a brown bagger (to place over her head) or do you want the works by someone who just stepped out of the pages of Maxim? The bottom line is you’re getting screwed. And regulating the rates is the job of Federal Reserve Board, the Madam who runs the whorehouse. The Best Little Whorehouse in the U.S.
So here’s a short description of the rate card and what you’ll get.
PR – PRIME RATE
The underlying index or benchmark for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Many small business loans are also indexed to the Prime rate. It’s what the bank charges you as a starting out point. But few “Johns” get the house rate, (but it’s possible assuming you have good credit). Currently those rates are from mid single digits (teaser rates — consider it a handjob) to double digits by the time they tack on extras.
FHMR – FIXED HOME MORTGAGE RATE
This is when you’re buying a house. On fixed loans, this is the prime rate plus a competitive fee — your standard, fixed rate for your visit. Maybe it even includes a drink before and a little conversation after — but today that goes between 4%-6%. More if you’re bigger — yes, size matters here.
HRL – HIGH RISK LOAN
The higher rate a bank charges (prime + additional profit) for riskier loans — often considered a bribe or “juice” though they call it a “margin” to entice a bank to let you in. It’s for people who don’t meet stringent qualifying requirements, (like you’re dirty and need a shower first). Oftentimes secured through a third party, or private equity firm. You’d expect to pay more for a threesome. The sky’s the limit here when you add in your carrying charges. You can often do better with a Shylock.
FDR -FEDERAL DISCOUNT RATE
The primary tool used to influence interest rates and the economy. It’s the interest rate at which an eligible financial institution may borrow funds directly from a Federal Reserve bank. Basically it’s what the bank pays to borrow the money they loan to you. This is the cut the Madam pays her girls.
COFI – COST OF FUNDS INDEX
Generally used for buying a house with a variable/adjustable interest rate loan. Cost-of-funds index (COFI) reflecting the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts. The 11th district covers Arizona, California and Nevada. Think of this as the going rate you’d pay if you just stopped your car and picked up a local free-lancer or housewife hooker. If it was mutually pleasurable, the rate may come down. It not, it may go up. There’s a roll of the dice as well as a roll in the hay involved in this one.
Okay, now you know what these terms mean. Examine your various loans and credit cards and look at what you’re paying. Then deduct from that the cost of the Fed borrowing which your institution (madam) is paying, (as of July 2, 2013 it’s 0.75%) figure a little something for operating costs (clean sheets) — (double it to 1.50%). Then toss in some profit – the girls aren’t doing it just for their exercise, (double it again to 3.0%). Anything over that is what it’s costing you to get screwed. So, grab yourself… a calculator (get your minds out of the gutter) and figure out if you’re getting the quickie, the full service or the Maxim model?
And always remember to bring your protection — a printout of the current rates so you’ll know if and how you’re getting “F’d” over.
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