| Libor based mortgages & and 6 month libor rates Info |
Libor based rates and mortgagesThe meaning of LIBOR is London InterBank Offered Rate. It is the interest rate at which major American and International banks lend to one another. Libor based mortgages are derived from that rate-mechanism. The LIBOR is an index that follows international economic circumstances. There are different kinds of maturities including 1 month libor rates, 3 month libor rates, 6 month libor rates and 1 year libor rates. Application of LIBOR indices has increased because of the U.S. Treasury Department's decision to stop bringing out shorter-term bonds like the One-Year Treasury bill in an effort to reduce government costs. The LIBOR has proven to be the most popular replacement to the US Treasury bill for Adjustable Rate Mortgages (ARM). LIBOR indexed ARM loans offer aggressive initial rates. Loan receivers are also protected from interest rate variations by both periodic - e.g. 6 month libor rates - and life time interest rate limits.
ARM = Adjustable Rate Mortgage Loans. The 1-month and 3-month Libor-OIS spreads were at low levels through the month of July but increased markedly in August and early September at the onset of the financial market turmoil. The 1-month spread declined during the fall but rose sharply again toward the end of the year. In association with these wider spreads, liquidity in term bank funding markets deteriorated substantially. Source Top of this Libor based Mortgages page.
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