Prime Rate
Direct definition
The interest rate banks charge their most creditworthy customers, often the base for HELOCs and other variable-rate consumer loans.
Written by the Vabasso Mortgage Editorial Team · Reviewed against agency and federal sources · Read our editorial policy for how we research and review mortgage content
Plain-English explanation
Prime moves in lockstep with the Fed funds rate — typically Fed funds + 3%. HELOC rates are often prime + a margin.
Why it matters
Prime moves change HELOC and variable-rate payments immediately.
Where you may see it
- HELOC disclosures
- Variable-rate loan documents
- Rate change notices
A real-world example
A HELOC priced at prime + 0.5% moves from 8.75% to 9.00% the moment the Fed raises rates 25 bps.
Educational and illustrative only
A common misunderstanding
The prime rate isn't the same as a mortgage interest rate — it's a benchmark banks use, and consumer rates are typically set relative to it, not equal to it.
Ask Vabasso AI
This glossary provides general educational information. Mortgage terminology, qualification methods, forms, timelines, fees, program rules, and legal meanings may vary by lender, investor, loan program, property, occupancy, state, and transaction. Definitions do not represent loan approval, legal advice, tax advice, or a commitment to lend.
- Author
- Vabasso Mortgage Editorial Team
- Reviewed by
- Vabasso Mortgage Licensed Advisory Team
- Last reviewed
- July 30, 2026