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Breaking Down The Libor

When doing your research for a mortgage or refinance, you may come across the term LIBOR, which is an acronym for “The London Interbank offered Rate Index”

This pretty much means nothing to most people, it’s definition is as follows The average of interest rates that major international banks charge each other to borrow U.S. dollars in the London money market.

The reason for this would be: The international interest rate index is used on some mortgages because American mortgages are being purchased by foreign companies as investments.

The LIBOR follows the world economic condition. It allows for international investors to match their cost of lending to their cost of funds.

The LIBOR compares most closely to the one year CMT index

Okay, what is the CMT index? The CMT index is the “Constant Maturity Treasury” index. These indexes consist of weekly or monthly average yields on U.S. treasury securities adjusted to constant maturities.

There are several different LIBOR rates widely used as ARM indexes, but the six month is the most common.

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