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<div type="image" title="In case RBI is in the mood to hike the interest, your home loan EMIs might end up taking more from your pockets. Or, if it leaves the rates unchanged, your EMIs wont budge one bit" msid="114284206" hostid="261" caption="&amp;lt;p&amp;gt;In case RBI is in the mood to hike the interest, your home loan EMIs might end up taking more from your pockets. Or, if it leaves the rates unchanged, your EMIs wont budge one bit&amp;lt;/p&amp;gt;"></div><br />On September 18, 2024, the <keyword id="19951097" type="General" weightage="20" keywordseo="us-fed" source="keywords">US Fed</keyword> delivered a jumbo-sized surprise to the global economy. Not only did they trim their interest rates by a massive 50 basis points to bring their yields down to 5%, but also hinted at further rate cuts in the upcoming months. This move from the fed and several other central banks globally had pushed expectations high for a similar rate slash closer home, from the <keyword id="19899808" type="General" weightage="100" keywordseo="rbi" source="keywords">RBI</keyword> this month.<br /><br />But governor <keyword id="19913110" type="General" weightage="20" keywordseo="shaktikanta-das" source="keywords">Shaktikanta Das</keyword>, in a <em>“picture abhi baaki hai” </em>moment, decided to hold the repo rates here steady, leaving them unchanged at 6.5% for the record 10th straight time. Although, he did tinker with the policy stand, changing it from “<em>rate cuts are absolutely off the table</em>” to a more accommodating “<em>we’re okay with bringing down the rates, if needed</em>”.<br /><br />This, rather neutral, stance from India’s financial custodian sparked hopes for a rate cut in December this year. However, the stubborn <keyword id="22195" type="General" weightage="20" keywordseo="inflation" source="Orion">inflation</keyword> levels in September have again dented such hopes.<br /><br />As consumers, you may be wondering what all the hullabaloo this is about, since it hardly makes a difference to your regular financial routine. Well, the majority of both economic growth and inflation is closely connected to this policy stance from the central bank and it does have a rather indirect effect on both our earnings and spending.<br /><br />But more directly, it would have clear implications for those looking to own a house. Even the slightest modification of interest rates, or the lack of it, influences the <keyword id="19916018" type="General" weightage="20" keywordseo="emi" source="keywords">EMI</keyword> you pay significantly.<br /><br />So, all aspiring homebuyers, is this the right time to take out a loan and buy a house? Can you expect a rate cut anytime soon, and what will that mean for your home-owning dreams? We lay it out.<br /><br /><h2>What’s the connection?</h2>You see, buying a house is no small feat, at least financially. The task becomes even more herculean if you are scouting for your own roof in cities like Delhi, Noida, Bangalore or Mumbai where, as Circuit from Munnabhai says, “<em>room shuru hote hi khatam ho jata hai”.</em><br /><br />Naturally, you’ll have to take a <keyword id="6354730" type="General" weightage="20" keywordseo="Home-loan" source="Orion">home loan</keyword> from the bank. Don’t be mistaken, the bank won't give you a loan that covers 100% of the value of the property you want to own. Rather, your loan amount will be equivalent to a certain percentage of the property’s total value. RBI’s guidelines on this are pretty clear: <br /><br /><ul><li>If your loan amount is up to Rs 30 lakh, you can get a loan worth 90% of the property’s value.</li></ul><ul><li>If the loan amount is between Rs 30 lakh and Rs 75 lakh, you are eligible for a loan worth 80% of the property’s value. </li><li>If you are taking a loan of more than Rs 75 lakh, your loan amount will be equivalent to 70% of the property’s value. </li></ul>Now assuming that you have the money, it's all about paying back the principal amount, but not without a little (read hefty) interest added on top. See, when you’re taking a home loan, you are actually signing up for a long-term, even multi-decadal financial commitment, which will unfailingly present itself to your bank accounts and finances every single month, in the form of EMIs, or equated monthly instalments). <br /><br />When you take a home loan, you can choose to pay the interest in two ways (talk about choices!). One is that you decide to keep a fixed rate of interest throughout the tenure of your home loan. <br /><br />So, if you opt for a 25-year fixed-rate home loan at the rate of 8.8% p.a., you’ll have to pay interest at this rate for the next 25 years, till your entire loan is paid off.<br /><br />Yes, you can go backsies and switch to a floating-rate home loan by paying a fee. Floating, as the name suggests, means that your interest rate is not set in stone. But starting October 2019, when it comes to a floating interest rate home loan, your payable interest and EMIs are directly impacted by any changes in <keyword id="20094323" type="General" weightage="20" keywordseo="repo-rate" source="keywords">repo rate</keyword>, which were left unchanged by RBI this time around. <br /><br />Why are these two so chummy, you might ask. Well, <keyword id="173069" type="General" weightage="20" keywordseo="Home-loan-interest" source="Orion">home loan interest</keyword> rates are a sum of two things:<br /><br /><ol><li>Repo Rate (the rate at which RBI lends money to banks)</li><li>Operational cost + margins</li></ol>Any plus or minus in this equation would send your home loan interests tanking, or skyrocketing. Vivek Iyer, Partner, Grant Thornton Bharat explains that any change in the repo rates impacts the cost of funds and thereby the home loan interest rates.<br /><br /> “When the interest rates are expected to reduce, the corresponding impact will be in the form of a reduced EMI. Home loan borrowers should always try to borrow at a floating rate when interest rates are expected to reduce and at a fixed rate when the interest rates are expected to increase. This minimizes the outflow in the form of EMIs that the home loan borrowers will experience”, he continues. <br /><br />So, no change in repo rates means no change in your home loan interest payout and no financial relief whatsoever. A rate cut, which most experts are anticipating will start this December, would mean your EMI payments come down, and your wallet might save a little more. <br /><br />But there’s also a chance of an UNO reverse happening. In case RBI is in the mood to hike the interest, your home loan EMIs might end up taking more from your pockets. <br /><br />Consider this. You took a floating interest rate home loan worth Rs 50 lakh in January 2022 at 8% p.a., for a period of 20 years. This brings your total monthly EMI to Rs Rs 41,822. <br /><br />But, as luck would (or won't) have it, RBI raised the interest rate by 250 basis points between May 2022 and February 2023, bringing it to its current status of 6.5%. Some back-of-the-envelope calculations suggest that now, your home loan interest payout will also rise by a hefty 2.5%, taking the total to 10.5%.<br /><br />In other words, you’ll have to dish out Rs 49,919 per month as EMI. <br /><br />Now, won't you heave a sigh of relief if the RBI were to bring down the interest rate by say, even 50 basis points, or 0.5%? Agreed, your EMI will come down just marginally, to Rs 48,251. But look at this over a 20-year period, and you’ll see how big the difference is.<br /><br /><h2>Are rates set to change anytime soon?</h2>Generally, RBI hikes the repo rates if it sees inflation spiralling out of control. Then, in a bid to reduce consumer spending, it raises interest rates to make borrowing expensive. <br /><br />But when the apex bank sees sluggish consumption in the economy, inflation in control and wants to boost spending, it slashes down on interest rates, making it more lucrative for people to borrow. <br /><br />As of now, most experts are not anticipating any changes in the interest rates anytime soon. This means home loans are not getting cheaper anytime soon.<br /><br />The CPI data, which came out yesterday, saw inflation rise to 5.49% in September, compared to 3.65% last month. Food and beverage prices jumped to a four-month high of 8.36% in September, as opposed to a 5.3% rise in August. So a rate cut seems a no-go at the moment! <br /><br />Apurva Sheth, Head of Market Perspectives and Research, SAMCO Securities explains that the RBI had probably expected a hardening of inflation and that's why it chose to hold on to the rates in the monetary policy announcement last week.<br /><br />“Now, it seems that RBI will take a cautious stance going ahead and will not be in a hurry into rate cuts like its global peers”, he added. <br /><br />In all this, one thing is clear, in the grand movie of the Indian economy, the RBI has chosen stability over drama. And just like in every good Bollywood film, we're left wondering what twist the sequel will bring. Until then, it might be “The End" for rate cuts, but the show must go on for the Indian economy!<br /><br />

Simply Put: Boom or bust — how RBI’s decision to leave rates unchanged affects homebuyers

Mumbai (Maharashtra) [India], August 18 (ANI): <keyword id="6354335" type="General" weightage="100" keywordseo="reserve-bank-of-india" source="Orion">Reserve Bank of India</keyword> on Friday said regulated entities (REs) have the freedom and they must offer all categories of retail loans either on a fixed or <keyword id="1104583" type="General" weightage="20" keywordseo="floating-interest-rates" source="Orion">floating interest rates</keyword> basis.<br /><br />At the time of sanction of EMI-based floating rate personal loans, RBI said regulated entities are required to take into account the repayment capacity of borrowers to ensure that adequate headroom or margin is available for elongation of tenor and or increase in EMI, in the scenario of a possible increase in the external benchmark rate during the tenor of the loan.<br /><br />In the wake of rising <keyword id="6371181" type="General" weightage="20" keywordseo="interest-rates" source="Orion">interest rates</keyword>, RBI said it had received several grievances from consumers related to the elongation of loan tenor and or increase in EMI amount, without proper communication with and or consent of the borrowers.<br /><br />"In order to address these concerns, the REs are advised to put in place an appropriate policy framework meeting the following requirements for implementation and compliance," RBI said.<br /><br />As a part of the new rules, the central bank said:<br /><br />At the time of sanction, regulated entities shall clearly communicate to the borrowers about the possible impact of change in benchmark interest rate on the loan leading to changes in EMI and/or tenor or both. Subsequently, any increase in the EMI or tenor or both on account of the above shall be communicated to the borrower immediately through appropriate channels.At the time of reset of interest rates, regulated entities shall provide the option to the borrowers to switch over to a fixed rate as per their Board approved policy. The policy, inter alia, may also specify the number of times a borrower will be allowed to switch during the tenor of the loan.<br /><br />The borrowers shall also be given the choice to opt for enhancement in EMI or elongation of tenor or for a combination of both options; and, to prepay, either in part or in full, at any point during the tenor of the loan.<br /><br />All applicable charges for switching of loans from floating to fixed rate and any other service charges/ administrative costs incidental to the exercise of the above options shall be transparently disclosed in the sanction letter and also at the time of revision of such charges/ costs by the regulated entities from time to time.<br /><br />REs shall ensure that the elongation of tenor in case of floating rate loan does not result in negative amortisation.<br /><br />RBI said regulated entities shall ensure that these instructions are extended to the existing as well as new loans suitably by December 31, 2023.<br /><br />All existing borrowers shall be sent a communication, through appropriate channels, intimating the options available to them, RBI said. (ANI)<br /><br />

Banks must allow retail borrowers to switch between fixed and floating rates: RBI

<ul class="summary-list"><li>Forget buying a home on land — some people are heading for rivers and lakes instead.</li><li>They're investing in floating houses, houseboats, and narrowboats.</li></ul><p>Moving into their 360-square-foot <a target="_blank" href="https://www.businessinsider.com/floating-tiny-home-diy-alternate-living-slow-life-off-grid-2024-1">floating home</a> a year ago was a dream come true for Sarah Spiro and Brandon Jones.</p><p>The house, located on Fontana Lake in North Carolina, has loft-style interiors with high ceilings and windows all around.</p><p>"I just love that no matter what you're doing, you can look out the window and have this super peaceful view — even if you're just doing dishes," Spiro, 27, told Business Insider.</p><div type="image" title="The couple built a floating home in the middle of a lake in North Carolina." height="1478" width="1971" msid="108758707" hostid="261" sizebytes="209268"></div><p>Spiro and Jones spent $90,000 building their floating home and say it would have been difficult to buy a house on land for that price. They pay a $5,000 annual mooring fee for their floating home.</p><p>Now, they can't imagine returning to life on land.</p><p>"I guess it depends on the person, but for us, we would never go back," she said. "It beats living on land."</p><div type="image" title="A man and a woman taking a selfie while on a lake." height="977" width="1302" msid="108758708" hostid="261" sizebytes="152420"></div><h2>Embracing life on the water</h2><p>Living on water is big on social media, where it's spawned popular hashtags like <a target="_blank" href="https://www.instagram.com/explore/tags/houseboat">#houseboat</a> and <a target="_blank" href="https://www.instagram.com/explore/tags/narrowboatlife/">#narrowboatlife</a>, and helped push creators like Adam Lind of <a target="_blank" href="https://www.instagram.com/adam.floatinghome/">@adam.floatinghome</a> to extreme visibility.</p><p>It's also a part of the alternate living movement that sees people choosing to stay in <a target="_blank" href="https://www.businessinsider.com/texas-tiny-home-renovation-old-shed-diy-before-after-photos-2022-6">tiny houses</a>, <a target="_blank" href="https://www.businessinsider.com/diy-renovation-tiny-home-pilot-airplane-truck-before-after-photos-2023-4">homes on wheels</a>, or <a target="_blank" href="https://www.businessinsider.com/shipping-container-tiny-house-with-suspension-bridge-2021-3">other forms of housing</a> over traditional brick-and-mortar homes.</p><p>National data on the number of people who live in floating homes, houseboats, and narrowboats is hard to come by as there isn't a single authority responsible for tracking all these housing forms across the US.</p><p>However, regional data suggests the lifestyle is still quite niche.</p><p>In 2023, there were 70 floating home sales reported on the Regional Multiple Listing Service, or RMLS, which covers the Portland area and a significant part of northwest Oregon, <a target="_blank" href="https://portlandfloatinghomes.com/">Portland Floating Homes</a> real-estate broker John McPherson told BI.</p><p>In the case of houseboats, US inventory is highest in the cities of Portland and Seattle, with an average of 47 and 23 monthly listings in 2023 respectively, per data provided by Realtor.com.</p><p>The cities with the next highest houseboat listings are Scappoose, Oregon, Sausalito, California, and Johns Island, South Carolina — each had between five and 10 houseboat listings per month in 2023, per data from Realtor.com.</p><div type="image" title="A man and a woman posing next to their houseboat." height="2268" width="3024" msid="108758709" hostid="261" sizebytes="348022"></div><p>Comprehensive data on the trend abroad is similarly hard to find.</p><p>The Canal &amp; River Trust, which looks after 2,000 miles of canals and rivers across England &amp; Wales, told BI there are about 34,760 boats along its waterways. Of those, 21% describe themselves as "liveaboard."</p><h2><strong>A punishing housing market is driving people to alternatives</strong></h2><p>Elizabeth Earle lives in a narrowboat that she bought for £35,000, or about $44,000,<strong> </strong>in 2022. She <a target="_blank" href="https://www.businessinsider.com/i-live-on-a-houseboat-in-england-elizabeth-earle-narrowboat-2023-3">previously told</a> BI's Jordan Pandy that the lifestyle was the least expensive way for her to buy a home in the UK.</p><p>"The price for a house in England is a bit ridiculous at the moment," Earle, 34, said. "Even if you're able to save £200 a month, how on earth are you going to save £20,000 towards a mortgage? It feels so unattainable compared to how our parents did it."</p><div type="image" title="A woman onboard a narrowboat in England" height="1152" width="1536" msid="108758710" hostid="261" sizebytes="185390"></div><p>Earle's comments echo true across much of her generation around the world.</p><p><a target="_blank" href="https://www.businessinsider.com/boomer-millennials-debt-financial-security-interest-rates-recession-savings-2023-11">Millennials</a> are <a target="_blank" href="https://www.businessinsider.com/personal-finance/millennials-debt-stressed-generation-2019-10">saddled with debt,</a> struggling to build up their <a target="_blank" href="https://www.businessinsider.com/millennials-saving-habits-less-wealth-versus-boomers-2020-2">net worths</a>, and getting <a target="_blank" href="https://www.businessinsider.com/millennials-priced-out-of-cities-into-suburbs-housing-crisis-2024-1">priced out of cities.</a> Some are <a target="_blank" href="https://www.businessinsider.com/millennials-living-with-parents-save-money-inflation-recession-12">moving in with their parents</a> because they can't afford to live on their own.</p><p>Houses are also <a target="_blank" href="https://www.nar.realtor/infographics/existing-home-sales-housing-snapshot">getting more expensive</a>. In the US, most major forecasts predict that <a target="_blank" href="https://www.businessinsider.com/personal-finance/home-prices-drop">home prices could rise</a> between 1.4% and 4.1% in 2024.</p><p>And while millennials might be suffering the most in the real-estate market, people of all ages are among those seeking out a life on the water.</p><p>"What I have observed is that a lot of buyers seem to be in their 40s, 50s, or 60s. Some are in their 70s," McPherson said.</p><p>It's often people who are downsizing and want to do something specifically for themselves now that they're older — which is enjoy the river, the views, and boating, he added.</p><p>"Housing has become increasingly unaffordable for many Americans because of historic high prices coupled with mortgage rates approaching 8%," Daryl Fairweather, Redfin's chief economist, told BI. "This is mainly due to the intense housing supply shortage in the US — we're short millions of homes, which is driving up costs."</p><p>A recent <a target="_blank" href="https://www.realtor.com/research/2023-spring-buyers-survey/">survey</a> by Realtor.com also found that more than half of potential home buyers were second-guessing their plans to buy a home, Hannah Jones, a senior economic research analyst at Realtor.com, told BI.</p><p>"The relatively high barrier to homeownership may push would-be buyers towards renting for longer or seeking out <a target="_blank" href="https://www.realtor.com/research/family-affair-survey-aug-2023/">alternative living arrangements</a> to save money for a home purchase," Jones said.</p><div type="image" title="A woman posing on a floating platform during the construction of a floating home." height="1536" width="2048" msid="108758711" hostid="261" sizebytes="345470"></div><h2>Hidden costs</h2><p>But if slashing expenses is the goal, life on the water might not be the answer.</p><p>"I wouldn't say that owning a floating house is much cheaper than owning a typical house on land, but it is a much lower-priced alternative to owning waterfront property in Portland," McPherson said.</p><p>Home insurance for a floating house tends to be about double what it is for a regular house on land, McPherson said. Most floating-home owners also have to pay a monthly fee to either rent or maintain the slip their house is in.</p><p>Additionally, the float — the part of the floating house that's equivalent to a foundation — deteriorates over time, McPherson said.</p><p>"Depending on what needs to be done, maintenance could cost around $10,000 or so," McPherson said. If a float is too old, it needs to be replaced — and it's not a do-it-yourself kind of job.</p><p>"Currently, to replace a float it could cost approximately $80,000 to $130,000 — or even more, depending on the size of the house and what exactly needs to be done," he said.</p><p>Laura Woodley, 35, took out a loan to buy a narrowboat in the UK in 2020. Her repayments cost about £650, or $810, a month.</p><div type="image" title="Laura Woodley sitting on her narrowboat." height="3000" width="4000" msid="108758712" hostid="261" sizebytes="431804"></div><p>"Many people think that I'm living on a boat to save money, but I actually spend more than I did when I was renting, although I now live alone instead of with roommates," Woodley <a target="_blank" href="https://www.businessinsider.com/living-narrow-boat-canal-london-lifestyle-struggles-2023-9">previously told</a> BI.</p><p>A boat license, heating expenses, and maintenance costs add up to roughly another £425 a month — and that's without emergency payments.</p><p>"A couple of winters ago, half of my chimney fell off, and my heating broke, and I had to pay £700 to fix it," Woodley said. "Living on a narrowboat is not as simple as having a set of fixed monthly expenses like you would if you lived in a house."</p><h2><strong>Value in the lifestyle and the community</strong></h2><p>Money aside, the lifestyle has perks.</p><div type="image" title="A row of floating homes and houseboats." height="1536" width="2048" msid="108758713" hostid="261" sizebytes="197498"></div><p>"It's a very serene and calm way of life compared to downtown," Kate Fincham, 35, <a target="_blank" href="https://www.businessinsider.com/millennial-woman-houseboat-alternate-living-water-slow-life-toronto-2024-1">told BI</a>. Her houseboat is moored in Bluffers Park Marina, about 30 minutes from downtown Toronto.</p><p>"There are lots of woodlands and trails by the water, and two beaches as well," Fincham added. She spends her summer mornings kayaking on the lake.</p><div type="image" title="A bird standing on a dock next to a houseboat." height="2202" width="2936" msid="108758715" hostid="261" sizebytes="685992"></div><p>Lily Rose, 32, <a target="_blank" href="https://www.instagram.com/aboardandante/">lives on a houseboat</a> on Lake Union in Seattle with her husband Dylan.</p><p>"Having ducklings and goslings pay us visits in the late spring and early summer months has been a big highlight of our time on the houseboat," Rose said.</p><p>"We enjoy taking our paddleboards out for a quick lunch break during the week or cruising down to the south end of Lake Union in our little 11-foot Boston Whaler to watch the Duck Dodge sailboat races in the summer," Rose added.</p><div type="image" title="The couple have direct lake access from their houseboat." height="2102" width="2803" msid="108758716" hostid="261" sizebytes="327520"></div><p>For Fincham, there's value in the community and freedom she's found through the houseboat lifestyle.</p><p>"I think it's always kind of inspiring for people to think, 'Oh, I don't have to save up to buy a condo,' or whatever. There are alternate avenues and ways to live, too," Fincham said.</p><div type="image" title="A woman standing in front of a houseboat during winter." height="1497" width="1536" msid="108758718" hostid="261" sizebytes="437600"></div><p>Houseboat life has helped her bond with her neighbors.</p><p>"The neighbors, we're all very close, and there are always activities and game nights, movie nights, or people going for dinner together," she said. When she lived in a house downtown, she barely knew the people who lived around her.</p><p>"You need to be able to roll with the punches," Fincham said. "Sometimes it's not the easiest way of life, but I always think, for me, it's the best way of life."</p>

They moved into floating homes and houseboats — and discovered a world of adventure and hidden expenses

<ul class="summary-list"><li><em>This post originally appeared in the Insider Today newsletter.</em></li></ul><p><strong>Happy Valentine</strong>'<strong>s Day!</strong> Don't worry about trying to grab a last-minute dinner reservation. Wow that special someone with <a target="_blank" href="https://www.businessinsider.com/fancy-date-night-slow-cooker-meals"><u>an easy but delicious homemade meal</u>.</a></p><p>In today's big story, we're looking at what a hotter-than-expected inflation report means for <a target="_blank" rel="noopener" href="https://markets.businessinsider.com/news/stocks/inflation-data-cpi-stock-market-federal-reserve-rate-cuts-outlook-2024-2"><u>markets and the econom</u></a><a target="_blank" href="https://markets.businessinsider.com/news/stocks/inflation-data-cpi-stock-market-federal-reserve-rate-cuts-outlook-2024-2"><u>y</u>.</a></p><p><strong>What's on deck:</strong></p><ul><li><p><strong>Markets:</strong> The stock market has been very kind to <a target="_blank" href="https://www.businessinsider.com/millennials-gen-z-stock-market-baby-boomers-wealth-investing-2024-2"><u>millennials' portfolios in recent years</u></a>.</p></li><li><p><strong>Tech:</strong> Target is cracking down <a target="_blank" href="https://www.businessinsider.com/target-self-checkout-closes-early-8-pm-some-stores-2024-2"><u>on self-checkout lanes</u></a>.</p></li><li><p><strong>Business:</strong> Instead of a housing bubble, maybe <a target="_blank" href="https://www.businessinsider.com/housing-market-bubble-home-prices-stay-high-crash-real-estate-2024-2"><u>high home prices are just here to stay</u></a>.</p></li></ul><p>But first, guess what's back.</p><p><strong><em>If this was forwarded to you, </em></strong><a target="_blank" href="https://www.businessinsider.com/subscription/newsletter/insider-today"><strong><em><u>sign up here.</u></em></strong></a></p><h2>The big story</h2><h3><strong>Inflation issues</strong></h3><div type="image" title="The stock market." height="1000" width="2000" msid="107698097" hostid="261" sizebytes="115196"></div><p><strong><em>“Just when I thought I was out, </em></strong><a target="_blank" href="https://www.youtube.com/watch?v=UPw-3e_pzqU"><strong><em>they pull me back in</em></strong></a><strong><em>.”</em></strong></p><p>Inflation reared its ugly head again with a <a target="_blank" href="https://www.businessinsider.com/inflation-cpi-consumer-price-index-january-housing-food-energy-prices-2024-2">hotter-than-expected report on Tuesday</a>. </p><p>The consumer price index rose 3.1% year over year in January and was up 0.3% from the previous month, writes Business Insider’s Madison Hoff. Forecasters had been expecting increases of 2.9% and 0.2%, respectively. </p><p>The market didn’t take kindly to the hot report. <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-news-today-hot-inflation-cpi-data-federal-reserve-2024-2">US stocks tumbled early Tuesday and never recovered</a>, with the S&amp;P 500 closing 1.37% lower and the Dow Jones Industrial Average dropping 1.35%. </p><p>Some analysts were quick to <a target="_blank" href="https://markets.businessinsider.com/news/stocks/inflation-data-cpi-stock-market-federal-reserve-rate-cuts-outlook-2024-2">suggest investors are “overreacting,”</a> BI’s Aruni Soni reports. They pointed out that housing accounted for a big part of the January bump and flagged that there's still a larger narrative of inflation cooling.</p><p>That silver lining doesn’t address the elephant in the room: What does the latest CPI data mean for interest rates?</p><div type="image" title="A graph showing consumer price index inflation." height="1092" width="1294" msid="107698100" hostid="261" sizebytes="43666"></div><p><strong>The hot inflation report comes just a few weeks after some industry experts felt </strong><a target="_blank" href="https://www.businessinsider.com/goldilocks-economy-interest-rate-cuts-federal-reserve-2024-2"><strong>the market was in a perfect position</strong></a><strong>.</strong></p><p>But hopes of a Goldilocks economy — where growth remains high while inflation and unemployment stay low — have dimmed. Instead, we’ve reentered the never-ending economic purgatory of: “Can the Fed pull off a soft landing?”</p><p>Fed Chair <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-news-today-fed-chair-powell-march-rate-cuts-2024-2">Jerome Powell had already signaled</a> the central bank likely won't cut interest rates in March, but Tuesday's CPI flare-up could lead to it kicking the can even further down the road.</p><p>Stubbornly elevated inflation means Powell might be less willing to cut rates and risk further fueling inflation. But keeping rates high, especially when so many expected relief early this year, is playing with fire. The US could fall into a recession this year if the needle isn’t perfectly threaded.</p><p>Rates staying elevated for longer <a target="_blank" href="https://markets.businessinsider.com/news/stocks/federal-reserve-interest-rate-cuts-stock-market-outlook-investing-bofa-2024-2">doesn’t necessarily spell disaster for stocks</a>, according to Bank of America. Large-cap US companies with lots of cash on hand could earn significant interest.</p><p>But not everyone is as lucky, as <a target="_blank" rel="noopener" href="https://www.businessinsider.com/corporate-borrowers-stress-despite-otherwise-strong-economy-cpi-rate-cuts-2024-2">corporate borrowers are “pockets of stress,”</a> according to Apollo Global Management co-president Jim Zelter.</p><p>It’s particularly painful for smaller companies, which tend to carry floating-rate debt more susceptible to elevated interest rates.</p><p>Maybe that’s <a target="_blank" href="https://www.businessinsider.com/us-economy-small-business-sentiment-labor-costs-inflation-recession-2024-2">why small business owners’ confidence levels are dropping</a>, with many citing inflation as their main concern, writes BI’s Yuheng Zhan.</p><h2>3 things in markets</h2><div type="image" title="Photo collage of an image of money (left), and a cell phone (right)." height="500" width="1000" msid="107698103" hostid="261" sizebytes="90074"></div><ol><li><p><strong>It’s been a good five years for millennial investors. </strong>Americans aged 18 to 40 — mostly millennials — <a target="_blank" href="https://www.businessinsider.com/millennials-gen-z-stock-market-baby-boomers-wealth-investing-2024-2">enjoyed an 80% surge in their wealth</a> from early 2019 to late 2023. That was well above the net-worth growth for those over 40, per data from the Federal Reserve Bank of New York.</p></li><li><p><strong>A reorg at BlackRock. </strong>The world’s largest money manager is <a target="_blank" href="https://www.businessinsider.com/blackrock-reorganizes-financial-strategic-investors-group-2024-2">shaking up its Financial and Strategic Investors Group</a>, which advises big clients like sovereign wealth funds, insurers, and central banks. It’s part of a bid to turn the group into "the most trusted advisor to financial institutions in our industry," according to an internal memo seen by BI.</p></li><li><p><strong>It looks like Peter Thiel timed the crypto market perfectly. </strong>The billionaire’s Founders Fund <a target="_blank" href="https://markets.businessinsider.com/news/currencies/bitcoin-ether-peter-thiel-founders-fund-crypto-investing-strategy-vc-2024-2">invested $200 million in bitcoin and ether</a> between late summer and early fall last year, Reuters reported. Since the end of June, bitcoin has jumped over 60% and ether is up more than 30%.</p></li></ol><h2><strong>3 things in tech</strong></h2><div type="image" title="Nvidia CEO Jensen Huang." height="1331" width="2000" msid="107698105" hostid="261" sizebytes="131400"></div><ol><li><p><strong>Sam Altman’s $7 trillion chip dreams are off the mark, Nvidia’s CEO says.</strong> Jensen Huang questioned Altman's <a target="_blank" href="https://www.businessinsider.com/sam-altman-7-trillion-chip-dreams-off-mark-nvidia-ceo-2024-2">attempts to raise up to $7 trillion</a> to boost GPU chip supply. Building AI data centers won't cost anywhere near that much, he said at a summit in Dubai.</p></li><li><p><strong>Some people are already returning their Apple Vision Pros. </strong>Customers said the headset's design, blurry screen, and lack of use cases <a target="_blank" href="https://www.businessinsider.com/apple-vision-pro-buyers-returning-headsets-design-blurry-screen-price-2024-2">don't justify its $3,500 price tag</a>. One big critic: <a target="_blank" rel="noopener" href="https://www.businessinsider.com/mark-zuckerberg-rips-apple-vision-pro-2024-2">Mark Zuckerberg</a>.</p></li><li><p><strong>Jeff Bezos' move to Miami shows just how hard it is to tax the rich.</strong> Since leaving his longtime home of Washington, Bezos has started unloading billions of dollars worth of Amazon stock. And thanks to his new address, Bezos could <a target="_blank" href="https://www.businessinsider.com/jeff-bezos-miami-move-shows-challenges-taxing-rich-2024-2">save hundreds of millions of dollars in state taxes</a> this year.</p></li></ol><h2><strong>3 things in business</strong></h2><div type="image" title="An illustration of colorful homes rising incrementally, as if part of a bar graph." height="1000" width="2000" msid="107698108" hostid="261" sizebytes="130870"></div><ol><li><p><strong>Sky-high home prices are here to stay. </strong>Since home prices began to climb in 2020, doomsayers have warned of a looming housing crisis. But barring a large-scale economic disaster, it doesn't look like <a target="_blank" rel="noopener" href="https://www.businessinsider.com/housing-market-bubble-home-prices-stay-high-crash-real-estate-2024-2">the bubble will pop anytime soon</a>.</p></li><li><p><strong>Brace yourselves, self-checkout fans. </strong>Target is <a target="_blank" href="https://www.businessinsider.com/target-self-checkout-closes-early-8-pm-some-stores-2024-2">limiting the hours you can use its self-checkout lanes</a> in some stores. Employees told BI that staffing levels and sales volumes are key factors in the decision.</p></li><li><p><strong>Government jobs are the ultimate anti-layoff “hack.” </strong>Recent waves of layoffs have made Gen Z disillusioned with corporate work. Some TikTokers <a target="_blank" href="https://www.businessinsider.com/gen-z-avoiding-layoffs-want-public-sector-goverment-jobs-2024-2">are now hyping up the public sector</a>, drawn to its solid benefits, early retirement, and student loan forgiveness plans.</p></li></ol><h2><strong>In other news</strong></h2><ul><li><p><a target="_blank" href="https://www.businessinsider.com/phoenix-open-waste-management-golf-drunk-bros-party-2024-2">Nine hours at the most unhinged hole in golf</a>.</p></li><li><p><a target="_blank" rel="noopener" href="https://www.businessinsider.com/house-republicans-impeach-mayorkas-150-years-vote-2-2024">House Republicans have impeached the first Cabinet secretary in almost 150 years</a>.</p></li><li><p><a target="_blank" rel="noopener" href="https://www.businessinsider.com/democrat-tom-suozzi-wins-new-york-special-election-2024-2">Democrat Tom Suozzi wins New York special election, flips Santos' old seat</a>.</p></li><li><p><a target="_blank" rel="noopener" href="https://www.businessinsider.com/lyft-typo-projected-profit-10x-better-than-it-really-is-2024-2">Nightmare on Wall Street: A Lyft typo projected profit to be 10x better than it really is</a>.</p></li></ul><h2><strong>What's happening today</strong></h2><ul><li><p><strong>Today's earnings: </strong>Cisco Systems, Sony, and other companies <a target="_blank" href="https://markets.businessinsider.com/earnings-calendar"><u>are reporting</u></a>.</p></li><li><p>Mercedes-AMG and McLaren are set to launch their 2024 F1 cars.</p></li></ul><p><strong>The Insider Today team: </strong><a target="_blank" href="https://www.businessinsider.com/author/dan-defrancesco">Dan DeFrancesco</a>, deputy editor and anchor, in New York. <a target="_blank" href="https://www.businessinsider.com/author/hallam-bullock">Hallam Bullock</a>, editor, in London. <a target="_blank" href="https://www.businessinsider.com/author/jordan-parker-erb">Jordan Parker Erb</a>, editor, in New York. <a target="_blank" href="https://www.businessinsider.com/author/george-glover">George Glover</a>, reporter, in London.</p>

What the latest inflation data means for interest rates

Mumbai, Feb 26 () All new floating rate loans given to medium enterprises will be linked with external benchmarks from April 1, according to the Reserve Bank of India.<p>With respect to micro and small enterprises, floating rate loans are already linked with external benchmarks.</p><p>In a circular issued on Wednesday, RBI said it has now been decided that all new floating rate loans to the medium enterprises extended by banks from April 1, 2020, "shall be linked to the external benchmarks".</p><p>The move is aimed at further strengthening monetary policy transmission so that benefits of reduction in key lending rate (repo) can be passed on to medium enterprises also, the apex bank said.</p><p>Floating rate personal and retail loans have already been linked to external benchmarks.  RBI repo rate, treasury bill yields, and other market interest rate published by FBIL (Financial Benchmark India Private Ltd) are among the benchmarks.</p><p>According to the RBI, subsequent to the introduction of an external benchmark system, the monetary policy transmission has improved in respect of the sectors where new floating rate loans have been linked to external benchmarks.</p>Since February 2019, the RBI has reduced the repo rate or short term lending rate by 135 basis points.   NKD CS ANUANU

Link floating rate loans for medium enterprises with external benchmarks: RBI to banks

<ul class="summary-list"><li>The Federal Reserve has raised interest rates 11 times in the last year and a half.</li><li>But the impact may not have hit most Americans, Moody's data suggests.</li></ul><p>The Federal Reserve's historic rate hiking campaign may not have actually hit most Americans that hard. </p><p>That's because most household debt is likely still locked into lower, fixed rates secured before the central bank started aggressively ratcheting up rates to control inflation.</p><p>According to Moody's Analytics data shared with Insider, just 11.1% of household debt carried a floating rate as of the first quarter of this year, meaning that only a small amount of total household debt outstanding was adjusted higher as market rates climbed over the last year and a half. </p><p>That figure hovered close to 27% in 1997 and then 25% in 2000, but has since fallen steadily over the last two decades.</p><p>From the time of the Great Recession of 2008 up until last year, the US central bank kept rates historically low, leading many Americans locking in fixed rate borrowing costs on all kinds of consumer loans that are much lower than what's being offered today. This has prevented a lot of pain, as floating rate debt resets on a regular basis as benchmark rates rise. </p><p>In short: Americans sidestepped the worst of the Fed's monetary policy tightening campaign. </p><p>"US households have been largely insulated from Fed rate hikes, as most consumer debt carries a fixed interest rate, the bulk of which is in mortgages," Cristian deRitis, Moody's deputy chief economist, told Insider on Monday. He pointed to separate Equifax data that shows nearly 70% of mortgages carry an interest rate below 4%. </p><p>"Existing borrowers have not seen their monthly mortgage payments change even as the Fed Funds rate has risen," he said. "Most auto, student, and personal loans carry fixed rates as well, further insulating borrowers from interest rate increases."</p><p>While many US households aren't immediately exposed to rising rates, they have had a big impact on things like like credit cards. That could lead to higher credit card delinquency rates, deRitis noted.</p><p>Last Wednesday, the Fed announced a 25-basis-point rate hike to bring the federal funds rate to the 5.25%-5.50% range, with Chairman Jerome Powell maintaining that the inflation battle still hasn't been won. Markets, meanwhile, are <a href="https://markets.businessinsider.com/news/stocks/federal-reserve-rate-hikes-investors-markets-stocks-finance-powell-inflation-2023-7">acting as if it's the final hike of the year</a>, and that policymakers will begin loosening in early 2024.</p><p>While the Fed's rate hike campaign may be at an end, anyone who took out a floating rate loan before the Fed started hiking rates —such as a home equity loan, a new personal line of credit, or certain auto loans–are likely facing higher payments today. </p><p>At the same time, at least some Americans are likely to have decided against taking out a loan because of high rates. Access to credit may have also diminished in recent months for some borrowers. </p><p>"Borrowers seeking new credit have been directly affected by higher rates leading some to forego taking on additional credit," deRitis said. "Tighter lending standards and a sharp increase in denied credit applications may further limit credit formation going forward."</p>

Here's why the Fed's rate hikes haven't actually hit Americans that hard

One of the primary concerns while taking a loan is the rate at which the loan is being offered as the loan rates help in selecting the lender to a great extent. The borrower is also concerned whether the loan is extended at a fixed rate or a floating rate.<br />
<br />
Fixed Rate loan are loans where the rates remain constant throughout the loan period, while in floating rate loans, the rates are linked to market conditions and may change periodically.<br />
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Floating rates may be linked to the base rate, inflation or other parameters; each bank may select its own methodology to fix this base rate. These rates have to be declared by the bank each quarter.<br />
<br />
Common sense says if you expect the rates to rise then you borrow at a fixed rate so that you can lock in your loan at a lower rate and if the rates are expected to fall then you borrow at floating rates so that you can benefit from the falling rates.<br />
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<strong>Are Rates Really Fixed for the Loan Tenure?</strong><br />
<br />
Fixed and floating rates have their advantages and disadvantages. Fixed loan rates are generally priced higher than the floating rate loans.<br />
Most banks have the Force Majeure (superior force/ chance occurrence/unavoidable accident) clause in the fixed loan agreement; as per this clause the bank may change the rates as it deems to be suitable depending on the market conditions or as per its internal policies.<br />
<br />
Banks may specify a period of 3 to 5 years after which they are allowed to change the interest rate. Some banks fix a regular interval of 3 to 5 years after which they will review the rates. This means that every 3-5 years, the rates are reviewed while some may do it if the conditions so warrant. Most banks, however, keep this clause in the agreement to keep themselves safe.<br />
<br /> When the applicant signs the loan agreement, he/she may overlook this clause that allows a bank the discretion the revise the loan rate. If you plan to take a <keyword id="788865" type="UNKNOWN" weightage="20" keywordseo="fixed-loan-rate">fixed loan rate</keyword> @ 11% while choosing to overlook the floating rate loan @ 10.% thinking that you will be paying the same EMI throughout the term as the interest rate will not change then you need think again.<br />
<br />
When a borrower chooses a fixed rate loan he or she is choosing a loan that is more expensive (when compared to floating rate loans) as he or she is looking for the certainty that comes with it. The borrower presumes that he/she will be able to plan his finances better as the EMI remains constant.  Thus if the rates are revised (generally in the upward direction) he/she may be left unprepared to bear the additional burden per month. Not only does the borrower feels cheated the primary reason for taking an expensive loan is defeated but he/she may also have to make considerable modifications to his/her monthly budget to pay the higher installments.<br />
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<strong>What Should the Borrower Do?</strong><br />
<br />
While as a borrower you may feel cheated if you are caught unaware with an increased EMI burden, the lender cannot be faulted. They put the clause in the loan agreement, whether fine print or in bold the clause is there. <em>As a borrower it is your responsibility to read and understand all aspects before signing the agreement.</em><br />
<br />
So if you are taking a loan or planning to take one, <em>check about the reset clause in the agreement</em> and be prepared for the additional burden that you may have to shoulder during the loan tenure. Though it may be rare but there might be financial institutions that may offer loans that are truly fixed without any reset clause; so if you are really sure that you want only fixed rate loan you could opt for them.<br />
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Either ways it’s better to be sure about what you are signing. Whether it’s a floating or a fixed rate loan; each has its advantages. Be sure about other terms and conditions too.<br />
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			(Rajiv Raj is the Director and Co-Founder of <a href="http://www.creditvidya.com/">www.creditvidya.com</a>)<br />
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			(Image: Thinkstock)<br />
			 
	

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Is your home loan rate really fixed?

<ul><li><strong>Investors continue to reach for <keyword id="6355374" type="DEFINITION" weightage="60" keywordseo="Yield">yield</keyword> as <keyword id="6371181" type="UNKNOWN" weightage="60" keywordseo="interest-rates">interest rates</keyword> remain at near rock-bottom levels.</strong></li><li><strong>Leveraged loan funds saw $8.8 billion in inflows so far this year, the most since 2018 and a stark contrast from the $26 billion in outflows last year. </strong></li><li><strong>Investors piling into the funds are likely betting that interest rates will continue to rise, as they offer a floating yield and are less price sensitive than <keyword id="620339" type="PERSON" weightage="60" keywordseo="junk-bonds">junk bonds</keyword> to interest rate increases.</strong></li><li><strong><a href="https://newsletter.businessinsider.com/join/4np/10-things-opening-bell?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest=ingest?utm_source=markets&amp;utm_medium=ingest" target="_blank" rel="noopener noreferrer">Sign up here for our daily newsletter, 10 Things Before the Opening Bell</a></strong><strong>.</strong></li></ul><p>Investors are piling into risky leveraged loan funds as they continue to reach for yield amid a historically low interest rate environment. </p><p>Mutual funds and ETFs that invest in leveraged loans, a form of secured debt that offers investors floating yields, saw $8.8 billion in inflows so far this year, according to data from Refinitiv Lipper first reported <a href="https://www.wsj.com/articles/junk-loan-rally-cuts-company-borrowing-costs-11615809600?utm_source=newsletter&amp;utm_medium=email&amp;utm_campaign=newsletter_axiosmarkets&amp;stream=businesseam=business">by The Wall Street Journal. </a></p><p>Those inflows represent the most since 2018, and are a stark contrast to the $26 billion in outflows the space saw last year, as well as the $3.7 billion in outflows from junk bond funds so far this year.</p><p>The shift in investor positioning comes as interest rates begin to bounce off of historic lows seen amid the COVID-19 pandemic. The yield on the 10-year US Treasury note has risen to a pre-pandemic high of 1.64% so far this year, as investors start anticipating a fed funds rate hike as the economy heats up.</p><p>Leveraged loans are loans backed by companies with below investment grade ratings that also tend to have already high debt burdens. The loans are often secured by business assets, meaning if the company goes bankrupt, holders of the secured debt will be first in line to collect amid bankruptcy proceedings.</p><p>The yield of senior loan funds often rises as short-term interest rates rise, meaning the loan prices are less sensitive to rising interest rates.</p><p>But the surge in demand for leveraged loan funds has also allowed companies to tap the debt <keyword id="31671" type="CITY" weightage="100" keywordseo="markets">markets</keyword> at favorable borrowing costs. Recent companies issuing new senior loans include GoDaddy and Churchill Downs, according to The WSJ report. </p><p>In fact, corporate issuance of secured debt has been through the roof, with more than $58 billion sold during the first two months of the year, accordin gto data compiled by Barclays and reported by The Wall Street Journal, representing the strongest start to a year since 2013. </p><p>Whether the Fed can contain investor jitters over rising interest rates will be put to the test as they hold their upcoming meeting on Wednesday, which can have a direct impact on further bond fund flows. </p>

Junk-rated loan funds have seen $8 billion of inflows this year, the most since 2018 as investors reach for yield

<ul class="summary-list"><li>The London Interbank Offered Rate (<keyword id="6386586" type="DEFINITION" weightage="60" keywordseo="LIBOR">LIBOR</keyword>) is a series of benchmark rates used by lenders to determine other short-term <keyword id="6371181" type="UNKNOWN" weightage="60" keywordseo="interest-rates">interest rates</keyword>.</li><li>A variety of financial products like CDs and loans like adjustable-rate mortgages are based on LIBOR, especially the three-month rate.</li><li>Though often a harbinger of trends in bank lending rates, LIBOR is slated to be phased out by 2021. <a href="https://www.businessinsider.com/?hprecirc-bullet"></a></li></ul><p>Reading the fine print on the terms for a mortgage or a CD, you may come across the phrase "your rate based on the prevalent LIBOR rate." </p><p>The LIBOR, short for London Interbank Offered Rate, is a fluctuating short-term interest rate that influences the way other interest rates are set in the world of <keyword id="25455" type="ORGANIZATION" weightage="100" keywordseo="finance">finance</keyword>. It serves as a scale for setting the interest earned by debt instruments, like bonds and derivatives, and the interest charged on consumer loans. <br /><br />An estimated $350 trillion worth of outstanding loans and trading contracts around the world are based on LIBOR.</p><h2>What is LIBOR?</h2><p>Somewhat like the US <a href="https://www.businessinsider.com/personal-finance/federal-reserve-interest-rates-cut-money-savings-loans" target="_blank" rel="noopener">federal funds rate</a>, LIBOR is an interbank rate: It reflects the interest that major banks charge each other when borrowing for brief periods — anywhere from overnight to 12 months.</p><p>Actually, there's no one LIBOR. It is based on five major currencies – the US dollar, the Swiss franc, the euro, the pound sterling, and the Japanese yen. Each currency is compiled for loans of seven different durations, ranging from one night to one year (see "current LIBOR rate" below).</p><p>In total, there are 35 LIBOR benchmarks administered and published every business day by the <a href="https://www.intercontinentalexchange.com/index">Intercontinental Exchange</a> or <a href="https://www.theice.com/iba" target="_blank" rel="noopener">ICE Benchmark Administration </a>(IBA). </p><h2>How is LIBOR determined?</h2><p>The IBA gathers a consensus for calculating the average interest rate every morning. Shortly before 7 a.m., the IBA asks an elite panel of 16 global contributor banks how much they are willing to charge other banks for short-term loans.</p><p>Chosen annually, this panel has a tight membership consisting of financial institutions with a significant presence in the London market. For example, only the Bank of America, Barclays, Citibank, Deutsche Bank, JPMorgan Chase, and UBS represent the US dollar LIBOR. </p><p>These banks are required to send their answers for each loan maturity period under their country's specific currency. The IBA then calculates the LIBOR employing a standardized, transaction-based, data-driven layered method called the Waterfall Methodology. </p><p>Once finalized, all 35 LIBOR benchmarks are published around 11:55 a.m. London time. </p><h2>What is the current LIBOR rate?</h2><p>The daily fluctuating LIBOR rates vary, depending on the length of the loan. For example, at the end of September 2020, the USD LIBOR rates for loans were:</p><ul><li>OVERNIGHT = 0.08%</li><li>1 WEEK = 0.11%</li><li>1 MONTH = 0.15%</li><li>2 MONTHS = 0.20%</li><li>3 MONTHS = 0.25%</li><li>6 MONTHS = 0.29%</li><li>12 MONTHS = 0.41%</li></ul><p>Of all the LIBOR reference rates, the most significant and commonly quoted is the US Dollar Three-Month rate. It is usually referred to as the current LIBOR. </p><h2>How does LIBOR affect you?</h2><p>Ordinary individuals and most companies don't get charged LIBOR rates. But the LIBOR does act as a benchmark for many consumer loans, investments, and other financial products, somewhat like the <a href="https://www.businessinsider.com/what-is-the-prime-rate" target="_blank" rel="noopener">prime rate </a>in the US. </p><h3>Investments Based on LIBOR</h3><p>The early 1980s saw the development of a whole host of investments based on interest rates and currency exchanges. LIBOR was originally established to offer an interest-rate standard — a baseline rate — for financial products. Some are sophisticated instruments used by multinational corporations, others are as basic as your neighborhood bank's CD.</p><p><strong>Financial derivatives</strong></p><p>LIBOR is universally used to price <keyword id="757464" type="PERSON" weightage="60" keywordseo="interest-rate-swaps">interest rate swaps</keyword>, a financial derivative in which two firms come to an agreement to trade rates. One company wants to receive a payment with a variable interest rate (like LIBOR), while the other wants to limit risk by choosing to receive a fixed-rate payment.</p><p><strong>Certificates of Deposit</strong> (CD)</p><p>If your CD is LIBOR-linked, the bank will provide you an interest rate premium that rises as the LIBOR goes up, or lowers as it goes down. Some CDs average changes quarterly or annually, which ties your CD to the 3-month or 12-month LIBOR. You have the potential to earn a higher interest rate, compared to a fixed-rate CD, but of course, can earn less too. </p><p><strong>Alternative investments </strong></p><p>These include sophisticated vehicles like collateralized debt obligations (CDO), a tranche of income-generating assets repackaged to include LIBOR-tied mortgages, auto loans, and corporate bonds.</p><h3>Loans Based on LIBOR</h3><p>Lenders use the LIBOR as an index for determining variable interest rates on your financing products, too. Typically, they add a percentage point or two as a constant margin to the LIBOR rate.</p><p><strong>Adjustable-Rate Mortgages (<keyword id="134449" type="COMPANY" weightage="60" keywordseo="Arm">ARM</keyword>)</strong></p><p>Mortgages with floating interest rates are one of the most common products based on LIBOR. The interest rate is fixed for the initial period of your mortgage, then resets according to how the market fluctuates during the remaining period of your loan. </p><p>For example, if you have a 5/1 ARM, it would have a fixed rate for the first five years followed by an adjustable-rate that resets once yearly. That annual reset probably would be based on the 12-month LIBOR. </p><p><strong>Private Student Loans</strong></p><p>At many lending institutions, student loans are typically bound to the three-month LIBOR. This is why most student loans are adjusted quarterly. The upside is that most student loan companies put a cap on their interest rates. So even if the LIBOR goes high, your interest rate will not exceed a set ceiling. </p><h2>LIBOR past and future</h2><p>LIBOR dates from 1984. The <a href="https://www.bba.org.uk/" target="_blank" rel="noopener">British Bankers Association</a> created it to establish a reliable source for interest rate-based investments. </p><p>It grew to become a respected benchmark all over the world—until 2012, when news broke that bankers had been rigging rates for years, mainly to help their derivatives traders. </p><p>The scandal led to Britain's Financial Conduct Authority (FCA) removing LIBOR from the supervision of the British Bankers Association and turning it over to the ICE Benchmark Administration.</p><p> n 2017, however, FCA made the announcement that it will no longer support LIBOR — the reason being that banks have slowed down lending to each other, making the index less reliable.</p><p>LIBOR is set for regulatory phase-out in 2021. After that date, banks will no longer be required to publish their LIBOR rates.</p><h2>The financial takeaway</h2><p>LIBOR rates determine the interest rates paid by a variety of investment products and the interest rates charged by variable-rate loans. Trends in LIBOR rates are also often used to estimate the trajectory of central bank rates in the future, and to gauge the overall health of the financial lending system on a global scale.</p><p>Replacements for LIBOR after 2021 are already being evaluated. The most likely candidate: the <a href="https://www.businessinsider.com/a-new-benchmark-rate-is-replacing-libor-heres-what-you-need-to-know-2018-4" target="_blank" rel="noopener">secured overnight financing rate</a> (SOFR), based on transactions in the US Treasury-bill repurchase market. </p><h2>Related Coverage in <a href="https://www.businessinsider.com/investing-reference" target="_blank" rel="noopener">Investing:</a></h2><h3><a href="https://www.businessinsider.com/libor-the-end-of-the-worlds-most-important-number-2019-1" target="_blank" rel="noopener">Here's what will happen after the death of the magical number underpinning $350 trillion in trades</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/are-cds-a-good-investment" target="_blank" rel="noopener">If you've ever considered putting money in a CD, now is probably the right time to do it</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/how-to-find-the-best-mortgage-rate" target="_blank" rel="noopener">How to get the best mortgage rate on your new home</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/fixed-rate-mortgage-vs-adjustable-rate-mortgage" target="_blank" rel="noopener">Fixed-rate vs adjustable-rate mortgage: How to decide which one you should get</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/how-to-choose-a-student-loan-college-grad-school" target="_blank" rel="noopener">How to choose a student loan to get the money you need for college or grad school</a></h3>

The LIBOR is a global interest rate that affects the rates of many loans and investments. Here's how it's set, and why it's slated to end

<ul class="summary-list"><li>The <keyword id="6783246" type="UNKNOWN" weightage="60" keywordseo="Prime-rate">prime rate</keyword>, aka the prime, is the interest rate that banks charge their most creditworthy clients.</li><li>Though not set by the government, the prime rate runs about 3% higher than the <keyword id="6355253" type="UNKNOWN" weightage="60" keywordseo="federal-reserve">Federal Reserve</keyword>'s <keyword id="2245316" type="PERSON" weightage="60" keywordseo="federal-funds-rate">federal funds rate</keyword>.</li><li>Commercial banks use the prime as a basis for the interest they charge on consumer loans, credit cards, and mortgages.</li></ul><p>The prime rate, aka the prime lending rate or simply the prime, is the interest rate that banks charge their biggest, most creditworthy corporate customers, along with very high net worth individuals. Think blue-chip stock companies or the likes of Warren Buffett. </p><p>But while the prime does not directly affect most consumers, it does provide the benchmark for many consumer and small business loans. It also affects other types of everyday debt, like credit cards, mortgages, and home equity lines of credit.</p><h2>What is the prime rate?</h2><p>The prime rate is an interest rate charged on loans. Much like any other interest rate, the prime exists to cover costs and losses associated with financing. It acts as the compensation for the multiple risks banks expose themselves to when extending credit to clients. </p><p>Only stable businesses with the highest credit ratings qualify for this prime interest rate, as they are the ones that pose the least risk of defaulting on their loans. As the name "prime" implies, it tends to be the best — that is, the lowest — interest rate the financial institution charges.</p><p>Although it's a variable, or floating, interest rate, the prime does not change at regular intervals. Rather, banks adjust it according to the shifts in the economy and the <a href="https://www.businessinsider.com/what-is-business-cycle" target="_blank" rel="noopener">business cycle</a>. The prime may not change for years.  Or it can potentially change several times within one year especially in economically turbulent times.</p><h2>Who determines the prime rate?</h2><p>The prime rate is not set by the government. But it does closely follow another interest rate, which<em> is</em> set by the Federal Reserve: the federal funds rate. </p><p>The Fed sets and adjusts the federal funds rate to keep the US economy on an even keel between <a href="https://www.businessinsider.com/what-is-a-recession" target="_blank" rel="noopener">recession</a> and over-expansion.  When the economy slows down, the rate is lowered to spur economic growth. When the economy grows too fast, the rate gets raised to try and stave off inflation.</p><p>Commercial banks use the federal funds rate when charging each other for overnight loans. In turn, these banks use the same rate as the starting point in setting the prime rate for their best-qualified clients.</p><p>Commercial banks generally adjust the prime rate roughly three percentage points above the federal funds rate. However, some banks set their lending rates up to five percentage points higher.</p><h2>What is The Wall Street Journal prime rate?</h2><p>There actually is no single prime rate; each bank or financial institution sets its own, based on its own lending criteria. When you see a reference to "the prime rate," it usually reflects an average rate across financial institutions.</p><p> The most commonly cited average — the "official source," so to speak — comes from The Wall Street Journal, which regularly surveys 30 of the largest US banks and publishes a consensus prime based on their rates.  The Journal reports this average prime rate daily, whether there are changes to it or not. It alters when three-quarters of these financial institutions adjust their rates. </p><h2>What is the prime rate today?</h2><p>As of this writing, the Journal's published average prime rate is 3.25%.  It has been at 3.25% since March 15, 2020.</p><h2>How does the prime rate affect you?</h2><p>Only the largest, most stable corporations with sterling credit scores generally qualify for the prime rate. But there's a ripple effect. Personal loans, small business loans, credit cards, and mortgages all carry <keyword id="6371181" type="UNKNOWN" weightage="60" keywordseo="interest-rates">interest rates</keyword> that are based on or tied to the prime rate.</p><p>If you take out a fixed-rate loan, it'll be based on what the prime currently is. If you have variable-rate debt, it'll fluctuate along with the prime. </p><p>In addition, fluctuations in the prime rate can reflect how tough or relaxed lenders' financing standards and requirements are. When the prime rate is low, it's easier to get a loan. When the prime rate is high, it often makes borrowing a lot more challenging.</p><h2>What things does the prime rate affect?</h2><p>Here's how the prime rate affects different types of everyday debt and loans. Of course, a variety of other factors affect your interest rate.  The terms can be higher or lower based on the prime rate, plus your credit score, your risk profile, your type of loan, your location, and the length of time it will take you to repay. </p><h3>Credit Cards</h3><p>Most credit cards have variable interest rates set several percentage points above the prime: "prime plus 13.99%". As the prime rate changes, you will see the increase or the decrease in your card's annual percentage yield within a billing cycle or two. </p><h3>Mortgages</h3><p>The prime most directly affects adjustable-rate mortgages. As it fluctuates, so should your adjustable rate at the annual reset. The impact is greatest on shorter-term loans; if you have a 30-year mortgage, it might not move much when the prime decreases. But you may still take advantage by opting to refinance your mortgage at a lower rate instead.</p><h3>Auto Loans</h3><p>Auto loans closely track the prime, especially if car dealers are hungry for business. For example, with the current prime at 3.25%, a five-year auto loan is averaging 4.24% for a new vehicle; for a used car, around 5.08%. </p><h2>The Financial Takeaway</h2><p>Just as the federal funds rate serves as the basis for the prime rate, the prime serves as the starting point for most consumer <keyword id="6354778" type="ORGANIZATION" weightage="60" keywordseo="Banking">banking</keyword> products. While individuals rarely receive the prime, their personal and small business loans, credit card rates, and mortgages reflect the prime rate. If their interest rates are variable, they'll shift according to changes in the prime rate.</p><p>Although it is not an official interest rate — or even one single interest rate — the prime rate acts as a sort of harbinger for the state of the economy, reflecting how easy it is to borrow, whether the government is encouraging or discouraging spending, and how confident banks feel about loaning money.</p><h2>Related Coverage in <a href="https://www.businessinsider.com/investing-reference" target="_blank" rel="noopener">Investing</a>:</h2><h3><a href="https://www.businessinsider.com/personal-finance/federal-reserve-interest-rates-cut-money-savings-loans" target="_blank" rel="noopener">When the Fed cuts interest rates, it affects everything from your savings account to your auto loans</a></h3><h3><a href="https://markets.businessinsider.com/news/stocks/federal-reserve-interest-rates-holds-near-zero-through-2022-fomc-2020-6-1029298397" target="_blank" rel="noopener">The Fed sees near-zero interest rates lasting through 2022 to curb the coronavirus' economic damage </a></h3><h3><a href="https://www.businessinsider.com/personal-finance/after-federal-reserve-cuts-interest-rates-cheaper-2019-7" target="_blank" rel="noopener">5 things that get cheaper when the Fed cuts interest rates</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/federal-reserve-interest-rates-cut-money-savings-loans" target="_blank" rel="noopener">4 reasons to open a high-yield savings account while interest rates are down</a></h3><h3><a href="https://www.businessinsider.com/what-is-business-cycle">Business cycles chart the ups and downs of an economy, and understanding them can lead to better financial decisions</a></h3><ul class="read-more-links"><li><h3> </h3></li></ul>

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