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Does the Cut in the Prime Affect Commercial Loans?

Blog Interest rates Last Tuesday, the buzz about the .75% cut in the Fed's rate (also called the prime) started. People got on the phone to their mortgage lenders asking if now the time to refinance their home loan is. As a result, there is a lot of information about what that rate cut means to residential loans. However, I've seen nothing about what the cut in the prime means to commercial loans, especially not in simple terms.

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Posted by Sheryl A. Smith, CCIM on 01/25/2008 06:51 PM

Comments (2)

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2 Comments on Does the Cut in the Prime Affect Commercial Loans?

JAN

2008

Sheryl, The biggest influence on commercial loan rates is the liquidity of commercial lenders. Right now they seem to have plenty of money so rates are relatively low. If residential rates go much lower then commercial might attract for money so those rates will soften some too.

Bill Roberts

Of course liquidity has a major impact on commercial loan rates. That's why the secondary market exists--to resell commercial loans and give the lenders back their original capital. But the secondary market fluctuates in a manner similiar to the bond market, not in step with the stock market or the Fed rate. The point is the drop in the Fed rate does not mean commercial loan rates are going down soon.

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