Question:

What is a LIBOR ARM loan?

Answer:

A LIBOR ARM loan is what it says it is - an adjustable rate mortgage loan based on a LIBOR ARM index; LIBOR standing for the London InterBank Offered Rate.

London banks offer 1-, 2-, 6- and 12-month LIBOR indexes based on deposits with different maturity.

LIBOR ARM Mortgage Loan Features

A LIBOR ARM is an excellent choice for high credit borrowers as the margin can be very low. At the same time subprime borrowers will not necessarily get a nice rate with a LIBOR ARM.

Negative amortization is not a likely characteristic of a LIBOR ARM. Also, the LIBOR indices are more unstable compared to MTA, COFI and CODI - much as rates on any short-term securities.

Other than that, the LIBOR ARM loans carry the same features as all adjustable rate mortgage loans - an initial rate period, adjustment period, and rate caps.

A LIBOR ARM loan can be a very good choice for an ARM, but how do you compare a LIBOR to another index ARM? The answer is much like you compare any two adjustable rate loans. You have to run several scenarios to determine how your loan terms - rate and monthly payments - will change once the initial period is over; how fast and whether you can afford them.

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Common misspellings: mortage and morgage