LIBOR Loan Rates
All adjustable rate mortgages (ARMs) use an index (or base rate) to determine borrowers' interest rates. Many different indexes are available (COFI, MTA, Prime Rate, CMT, T-Bill, etc.), each with its own advantages and disadvantages.
The LIBOR is one of many international indices, and it follows the world marketplace, fluctuating with international economic conditions. The LIBOR is most comparable to the 1-year Constant Maturity Treasury (CMT) index and tends to be more variable than COFI (11th District Cost of Funds Index) rates. The LIBOR index (particularly 1- and 6-month LIBOR) is generally considered to be one of the better ARM indices, keeping pace with popular options like the COFI, the 6-month T-Bill, the 6-month CD, and the MTA.
Lenders use the LIBOR rate as listed by Fannie Mae (FM LIBOR) or by the Wall Street Journal (WSJ LIBOR). The Fannie Mae LIBOR rates are posted on the Fannie Mae website (www.fanniemae.com) and are updated by the last working day of the month. The LIBOR rates published daily by the Wall Street Journal are copied from the British Bankers' Association (BBA) listings. More information about the BBA LIBOR (how it is calculated, rates history, etc.) can be found on their website. When providing a LIBOR-indexed ARM, a mortgage lender broker must state to borrowers which LIBOR listing they are using.
LIBOR Mortgage Loan Rates
The LIBOR index is a particularly attractive option right now (June 2005), as the current LIBOR rate is currently low, and LIBOR rates have a history of being fairly stable and reasonable. In addition, most LIBOR ARMs are offered without points. LIBOR-indexed ARMs offer borrowers aggressive introductory interest rates (lower than other ARMs) as well. Of course, as with all adjustable rate mortgages, as the index increases or decreases, so will the interest rates tied to it. However, the historical LIBOR rate is slow-moving, and thus relatively stable (without sudden spikes or troughs). Furthermore, LIBOR ARMs borrowers are usually protected by periodic and lifetime interest rate caps, and LIBOR ARMs generally do not involve negative amortization. Common types of LIBOR include the daily libor, 30 day libor and 6 month libor.
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