London Interbank Offered Rate
The London Interbank Offered Rate (also known as LIBOR) is an benchmark. It is published and formulated on a daily basis by the British Bankers Association and is used as a reference rate for a number of different sectors and financial instruments.
Use with Mortgages
Over the past decade, the LIBOR has increasingly been used as the reference index for calculating interest rate changes on American . As with any interest rate benchmark, the LIBOR can increase or decrease, depending on various international market factors.
There are in fact several LIBORs. Each one is associated with a different deposit maturity period. Adjustable rate are commonly tied to the 6-month LIBOR, which, as the name suggests, changes every 6 months. An adjustable rate mortgage tied to the 6-month LIBOR usually sees an interest rate change every 6 months. When that change occurs, the most recent 6-month LIBOR rate is used, in conjunction with the mortgage's , to formulate the new mortgage interest rate. If the most recent 6-month LIBOR was 5% and a mortgage's margin is 2%, the new interest rate for that mortgage will be 7%, assuming it doesn't exceed the mortgage's rate adjustment cap.
Neither the LIBOR nor any other interest rate benchmark influences . Such reference rates only influence adjustable rate mortgages.
Valuable Information
When applying for an adjustable rate mortgage, always identify which interest rate benchmark the mortgage will be tied to. Also check the mortgage's margin, the introductory fixed rate period and whether the mortgage has any . These valuable pieces of information will empower you when you are negotiating with multiple lenders.
If you feel overwhelmed by the LIBOR, , and similar concepts, you can consult with a . Better still, contact a , who will help you select the best mortgage for your financial goals, and show you how to use your mortgage to secure your home and plan for the future.
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