Archive for the 'ARM' Category

The LIBOR Loan – Buyer Beware

Saturday, November 4th, 2006

There are a lot of people in trouble because they got themselves into a Libor Mortgage Loan or the equivalent.  LIBOR loans are adjustable rate mortgages (ARM) whose interest rate is tied to the one-month LIBOR index. At one time this was the most sought-after loan, but during the Months of October 2006, November 2006 and December 2006 there are going to be a lot of unhappy mortgage owners and a number of foreclosures are going to be set in motion.

The five letter acronym “LIBOR” stands for “London InterBank Offered Rate”, which is the base interest rate paid on dollar-denominated deposits between banks in the Eurodollar market. In plain language the LIBOR sets the interest rate for a number of different home loans, bridge loans, construction loans, especially when the money for these loans is coming from overseas investors.

The LIBOR Loan Program is an adjustable rate mortgage that is tied to a LIBOR Index Rate and points are added on top of the LIBOR interest rate and/or additional basis points (fractions of a percentage point) to give the buyer a mortgage rate that is higher than the LIBOR rate.  Typically one speaks with their home loan officer, mortgage broker, lender, next door neighbor the rich guy and they invariably hear that the adjustable rate is 1.75 points (percentage points) above the LIBOR with 2.5 points (2.5% of the entire mortgage loan amount) as the cost of the loan.

Also, we need to remember, that adjustable rates go up and down.  They are going up, way up this November and December and people are going to lose their homes.  October adjustments have already steamrolled a number of mortgage holders and their home loans are now chocking them.

More about LIBOR in our next blog.

    • Posted in California Home Loan Rates, LIBOR, LIBOR Loan, LIBOR Mortgage Loan, Adjustable Rate Mortgage, ARM, London InterBank Offered Rate, Banks, basis points, adjustable rates, mortgage holders | 4 Comments »