LIBOR Warning Florida Residents – Do you have a LIBOR mortgage?
LIBOR Warning Florida Residents – Do you have a LIBOR mortgage?
The LIBOR rate has spiked in recent weeks and if your mortgage is an adjustable rate loan that is based on a LIBOR index you should be concerned.
Why is this something to be concerned about?
What is the LIBOR?
From a recent report on Bloomberg this week..
“The overnight Libor rate in U.S. dollars soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers’ Association. The one-week rate rose by more than a percentage point, to 3.88 percent from 2.49 percent on Monday, and the one-month rate increased to 2.75 percent from 2.5 percent.”
LIBOR = “London Bank Inter Offered Rate”. It is a rate index that is set by the British Bankers’ Association.
The LIBOR was created in the mid 80’s. The index became widely used in the mid to late 90’s by US mortgage lenders as the preferred index for adjustable mortgages. Most subprime and over 40% of conforming adjustable rate loans are based on a LIBOR index.
Because the LIBOR index was created and set by the British Bankers’ Association these loan rates cannot be controlled by the FED.
If the LIBOR’s recent increases continue the adjustable rate mortgage payments that are tied to the LIBOR could more than double at adjustment time.
Most LIBOR based loans are tied to the 6-month index. This means that the rate is a rolling 6 month average. So will a short term spike cause you rates to jump? No. But an ongoing increase will.
If you have a LIBOR rate keep a very close watch on the monthly rate.
Do not wait for the rate to spike before you have an exit strategy.
You should discuss your options with a mortgage professional – if you would like to discuss your situation and posible solutions please contact me.