LIBOR (London InterBank Offered Rate) is an index set by a group of London based banks, and sometimes is used to determine the rate for U.S. adjustable rate mortgages. In 4 years, LIBOR will be going away. So what does that have to do with you? Well nothing, UNLESS you have an adjustable rate mortgage. When this changes it will create uncertainty for a borrower who can’t figure out what the rate is going to be.
Some LIBOR loans have interest rates that adjust monthly, and others adjust much less frequently. Both principal and interest (P&I) and interest-only (IO) mortgages can be based on the LIBOR. If you are not sure if your loan is tied to LIBOR take a look at the note you signed. There is also an ARM disclosure that would say what the index and the margin were.
So what do we know? That this brings about uncertainty. When LIBOR goes away, the servicers can set the rate to any index they wish. They will have to notify the borrower prior to the change date, but by then short and long term rates could have skyrocketed. With both fixed and adjustable rates are still low, it may be the right time to review your mortgage with a professional.
If you have any questions, please let me know. I would more than happy to discuss your specific situation and address your personal questions.
Chris
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