How to use Libor in a sentence
Although many mortgage companies base their interest rates on the Federal Prime Rate, Chase Home Finance bases their mortgage interest rates on the London Interbank Offered Rate, also known as the LIBOR.
Some lenders tie their interest rates closely to an index such as the Prime Rate or the Libor plus a predetermined margin, but the choice is ultimately up to the lender to decide what interest rate to charge.
Interest rates are based on the one-year LIBOR index plus a margin.
Lenders commonly offer ARMs that are either attached to the Prime Rate or the LIBOR.
The LIBOR and the Prime Rate are often similar, but there is usually a difference between the two.Advertisement
The LIBOR is simply another index by which some adjustable rate mortgages are set.
Libor rates are updated on a daily basis.
Some mortgage lenders offer loans using Libor rates as the base rate on which to calculate the rate of interest the borrower is charged.
When interest rates are low, choosing a Libor mortgage makes sense.
Under the provisions of a Libor mortgage, the interest rate is fixed for a specific time.Advertisement
After that point, the rate varies depending on the Libor rates.
A margin is also added to the rate, so the borrower ends up paying the Libor rate + a certain percentage on top of that rate.
The terms of the Libor mortgage will likely also include a rate adjustment cap.
Since the interest rate on this type of mortgage is variable, if the Libor rate increases, so does the interest paid on the mortgage.
To find out whether a Libor mortgage makes sense for your situation, ask your bank, financial advisor, or mortgage broker to explain this option in detail.Advertisement
Although many lenders follow a certain index - whether it's the Prime Rate, the LIBOR, or some other index predetermined by the lender - it is up to each individual lender to decide how much to add to each index.
Bloomberg offers a listing of common mortgages indexes including the Prime Rate and LIBOR.
PrimeRate lists the current rates for the LIBOR, Prime Rate, and Treasury Rate.
These lenders base their interest rates on one or more indexes, most commonly the U.S. Prime Rate or the LIBOR rate.
All Washington Mutual adjustable rate mortgages are based on the Libor Index.Advertisement
How can you find out what is current Libor rate?
Like most other indexes, the Libor is subject to adjust frequently.
This means that finding out what is current Libor rate on Monday is probably not sufficient if you actually need the data for Friday.
It is also important to keep in mind that just because a financial institution offers loans based on the Libor it does not necessarily mean that the Libor rate is the actual interest rate you will pay.
There are multiple sources for finding out the current Libor rate.Advertisement
Stick to sources you trust, and don't assume that an advertised Libor rate will be universal among all mortgage lenders.
Plenty of high-quality websites offer up-to-the-minute updates on the current Libor rate.
Best of all, many of these websites will compare the various national mortgages offered based on the Libor rate to find you the best deal depending on your creditworthiness.
BankRate.com offers interest rate comparisons for mortgage lenders offering loans based on the Libor index.
This site breaks down the comparison to the various mortgage products offered based on the Libor, including the interest rates for one month, six months, and a year.
PrimeRate.com features the current Libor rate as well as historical data that allows visitors to view which direction the Libor has been going in the past few months.
You can also compare the Libor rate to the other popular indexes using this website.
Not all mortgage lenders offer loans based on the Libor, but as the popularity of this index increases there are more and more lenders who have added this mortgage product to their portfolios.
Check the website for your preferred mortgage lender for updates regarding the current interest rate offered for mortgages based on the Libor rate.
You can also call your preferred lender over the phone can ask to speak to a mortgage representative to find out what is current Libor rate mortgage offered through the lender.
The London Interbank Offered Rate (LIBOR) is the average of the rates which the highest-rated banks in England would charge to borrow money from each other.
The LIBOR rates are frequently used by lenders throughout the world as a benchmark from which the lender can determine their own interest rates.
The LIBOR rates are calculated in Eurodollars.
There are many ways to get an answer to the question "What is the LIBOR interest rate?"
The international data vendors provide the rate data to the financial press, such as the Wall Street Journal and the Financial Times, which both publish the LIBOR data the next day.
For example, the LIBOR rates from the prior day are published each business day in the Money Rates table in the "Money & Investing" section of the printed and online version of Wall Street Journal.
In addition to newspapers, many financial websites are licensed to publish the LIBOR rates at the end of London's business day.
You don't have to find a financial newspaper or website to check the LIBOR rate.
The BBA publishes the current LIBOR rates as well as historical LIBOR data on their website.
When the LIBOR rates go up, the mortgage interest rates in the United States which are calculated on the LIBOR rates usually also go up.
The most frequently used LIBOR rate in mortgage rate calculations is the 6-month rate; however, the 1-Month, 3-Month and 1-Year LIBOR rates are also used by some lenders.
Lenders who don't use the LIBOR rate will use some other financial rate as the basis of their rate setting, such as the 11th District Cost of funds or the 6-Month Treasury Bill.
If you are looking for the historical Libor USD, you are looking for the Libor rates which reflect the interest rates for inter-bank lending of United States Dollars in the London financial market.
The Libor interest rates are determined each London business day by the British Bankers' Association (BBA) as a composite of at least eight major banks in London.
The Libor rates for each currency are set independently for each currency.
The highest and lowest interest rates of Banks A, D, Q and R are disregarded and the remaining rates are averaged to determine the 6-month Libor Rate in USD.
To get the 6-month Libor Eurodollar rate at these same banks, the BBA would ask these banks what they would charge Bank B to borrow funds in Eurodollars for six months.
The highest and lowest interest rates of Banks A, D, Q and R would be disregarded and the remaining rates would be averaged to determine the 6-month Libor Rate in Eurodollars.
Generally, any source of historical Libor rates will include the historical Libor USD rates.
There are many good sources for historical Libor rates.
British Banking Association - The BBA website includes historical Libor rates back to January 1986 for United States Dollars as well as nine other international currencies.
EconStats - This website provides Libor rates in United States Dollars as well as many other foreign currencies.
The 1-month and 3-month Libor rates are shown in the same chart as the Prime Rate and the Federal Reserve Target Rate.
Reviewing the Libor index history is a good way to see the various fluctuations in the Libor interest rate over time.
The six-month Libor rate is frequently used as the index for mortgages.
Various options typically would include the United States Treasury bills and the Libor rate.
Mortgage lenders can be a good source of historical Libor index data.
The format of their data, however, may not be as easy-to-use as the formats used on various financial data websites.A good place to start for Libor rate history is the website of the British Bankers' Association (BBA).
The BBA develops and publishes the Libor interest rates every London business day using data from at least eight major banks in London.
The BBA website includes Libor index data from January 1986 and provides the daily data in Excel spreadsheet format.
Another excellent website source for the Libor index history is Bloomberg.com.
This website provides Libor rates from one month, three months, six months and one year ago.
For example, some financial experts feel that the Libor index is less volatile, maintaining fewer ups and downs than the Treasury index.
It is also assumed by some people that the Libor index is less likely to react to United States-based financial news.
The lender must use the one year Treasury index or the one year LIBOR as the index and cannot choose another number haphazardly.
A lot of Americans like to check the historical LIBOR rate USD before they look to buy a home or make another major investment.
The LIBOR - which stands for the London Interbank Offered Rate - usually follows the Federal Funds Rate fairly closely.
Because of this, economists have kept close track of the LIBOR since its advent in September 1989.
The three month rate was at its peak when the LIBOR began, but it didn't reach its low of 1.1107 until March 2004.
For more historical data for the LIBOR, visit the website for the Wall Street Journal.
As evident in a line graph of the historical LIBOR rate USD, the numbers for all of these rates went through basically the same peaks, valleys and plateaus over the course of the 1990s and 200s.
Economic analysts use the historical LIBOR to try to predict where the rate will be in the future.
The LIBOR rate has the potential to change frequently.
Lenders use the daily rate to determine what interest rates they will charge consumers and investors for loans based on the LIBOR.
Since the LIBOR can change frequently, it is advised to check it often.
The Wall Street Journal online has an updated Market Data Center that includes the current LIBOR rate as well as other money rates.
It is important to keep in mind that the LIBOR rate is published on a daily basis, but the rates published in newspapers and in ads may not be the most current information.
Always check the publication date of any LIBOR rate to ensure its timeliness.
Each business day of the week, the British Bankers' Association determines the LIBOR rate at approximately 11 a.m. local time.
To calculate the LIBOR rate, the British Bankers' Association looks at the middle 50 percent of the rates provided by the panel banks to determine an average.
The LIBOR rate is used as a benchmark for banks all over the world.
Learn how the numbers are developed and the best sources for finding LIBOR data.
The LIBOR inter-bank average is similar to the Prime rate, the inter-bank average of United States banking institutions.
The LIBOR rate is typically lower than the Prime rate.
Typically, the interest rate on an adjustable rate mortgage is set based on a combination of the LIBOR rate plus a margin of some pre-agreed percentage.
The rates are often set based on the 6-month LIBOR rate plus the margin.
These average interest rates are called the LIBOR rates.
Every business day at 11 a.m. Greenwich Mean Time (London time) the BBA determines the LIBOR rates for that specific day.
After determining the various rates for the various maturities, the BBA compiles the rates into a chart format - the LIBOR chart.
Many business and financial publications print all or part of the LIBOR chart for the prior day in their publications.
For example, in the United States, LIBOR rates can be found in Financial Times and the Wall Street Journal.
Some financial websites, including bankrate.com and wsj.com, are licensed to publish the current LIBOR rates at the end of London's business day.
All maturities of the current and historical LIBOR rates can always be found on the BBA website.
Who decides what is LIBOR rates on a day to day basis?
The United States in particular uses the LIBOR as a common interest rate index offered to borrowers applying for adjustable rate mortgages.
This does not mean that all mortgage lenders offer mortgages based on the LIBOR.
This is common practice for LIBOR loans as well as for loans based on other indexes.
There are many reliable resources to find out what the current LIBOR interest rate is.
The LIBOR history extends from a solution to implement new investment products in the 1980s through the needs to adapt to a new financial currency and to the definition of the word "prime."
By January 1986 the LIBOR history unfolded into a new interest rate index when the BBA introduced the LIBOR index for use by its member banks.
Euro was introduced as a LIBOR currency in January 1999.
Typically the LIBOR six-month United States Dollar rates are used as the rate setting index.
The Wall Street Journal published a study in May 2008 suggesting that the use of the LIBOR interest rates may have understated the cost of funds for banks to borrow from other banks.
An adjustable rate mortgage is tied to an index such as the Prime Rate or the LIBOR.
In Europe, this entity is LIBOR - the London Interbank Offered Rate.