Down The Libor
doing your research for a mortgage or refinance, you may come across the
which is an acronym for “The London Interbank offered Rate Index”
pretty much means nothing to most people, it’s definition is as
average of interest rates that major international banks charge each other
to borrow U.S. dollars in the London money market.
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.
LIBOR follows the world economic condition. It allows for international
investors to match their cost of lending to their cost of funds.
LIBOR compares most closely to the one year CMT index
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.
are several different LIBOR rates widely used as ARM
indexes, but the six month is the most common.
Rate vs. Variable Rate Mortgages