Glossary: Paper Loss – Prime Rate
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- Paper Loss – an unrealized loss on an investment calculated by subtracting the current market price from the investor’s cost. No physical money changes hands unless the owner of the commodity (house, stock etc) decides to sell at the reduced price.
- Par Rate – the lowest interest rate a borrower qualifies for, given by the lender.
- Paying Points – money paid upfront to lower the interest rate. The breakeven point, where monthly savings meets/exceeds money paid upfront, is usually around 60 payments or 5 years. This means that in many cases paying points will pay off as long as the borrower does not sell or refinance before the breakeven point. Typically, one point is equal to one percent of the amount you borrow.
- Predatory Lending – the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to pursue the matter in court. Predatory lending tactics include abusive prepayment penalties, exorbitant fees, loan flipping and unnecessarily strict terms.
- Prepayment Penalties – fees imposed on borrowers who pay off loans before the set 10, 15, 30-year or other loan period. Prepayment penalties are not inherently predatory, but they can be set so high that borrowers cannot refinance into lower-rate products.
- Prime Lending – refers to lending to borrowers with a very high credit rating. Because there is little risk that they will miss payments or default on their mortgage, these clients receive the very best interest rates.
- Prime Rate of Interest – the rate of interest set by the Federal Reserve Bank. It is adjusted periodically to help control inflation and other economic crises. A common phrase when discussing interest rates is “prime plus 3” or “prime plus 6.” This refers to the number of percentage points the interest rate is above prime.
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