Can you tell more about the LIBOR ARM index?


The LIBOR ARM index is the average of interest rates on London banks dollar deposits, since London is the central financial market in Europe.

LIBOR stands for London Inter Bank Offering Rates (LIBOR) and reflects the international economic state.

In their everyday activities, most lenders use as reference the WSJ LIBOR, published on Wall Street Journal. Actually, the  LIBOR published by Wall Street is not their own; they publish, in fact, the British Bankers' Association LIBOR - the BBA LIBOR as of the previous day.

Some lenders also used to follow the FNMA LIBOR, published by Fannie Mae. However, the Fannie Mae LIBOR ARM index has been discontinued and lenders are invited to use a replacement index of their choice.

LIBOR ARM Indexes Are among the Most Preferred

LIBOR indexes come in 1-Month, 3-Month, 6-Month and 1-Year LIBOR. The 6-Month and 1-Year LIBOR are the most used ones. In comparison to other ARM indexes, LIBOR fluctuations resemble most closely the 1-Year CMT behavior, and LIBOR is a lot quicker to change compared to the slow 11th District Cost of Funds Index (COFI).

LIBOR-based ARM home loans often have best starting cost and rates and borrowers are protected by adjustment and lifetime rate caps. Negative amortization on LIBOR indexed ARMs is rare.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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