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Libor ARM

Libor ARM
Fernando Paez
UpdatedJun 7, 2024
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    1 min read
Key Takeaways:
  • As with any other ARM products, Libor ARMs still have some risk.

Understanding Mortgage Products: What is a Libor ARM?

I was asked a few questions about this particular mortgage product the other day and thought it would make a good informative piece.

Definition of Libor: London InterBank Offered Rate, or the interest rate that is given by large London lenders for deposits of American cash.

In fact, there are several of these interest rates, each corresponding with a different timeline of ARM (adjustable rate mortgage). This timeline can range from a 1-month to a year term. These mortgage products are known as Libor ARMs.

How Does a Libor ARM Work?

Just like a local adjustable rate mortgage depends on an index, Libor ARMs depend on these InterBank offers to adjust your mortgage rate. As with other ARM products however, there are still some risks:

  • High Rate Caps: Libor ARMs can have high caps on interest rates. Even if they start out low, this could become a serious problem.
  • Index Changes: The indexes that Libor ARMs are based upon can change quite quickly. This can be both a positive and a negative depending on which way rates are swinging.
  • No Flex in the Payment: Libor ARMs don’t offer negative amortization like other ARMs do. Negative amortization is when you have a payment option that does not fully pay the interest due. This unpaid interest is added to your principal balance, thus the "negative" amortization.

Mortgage market: a pulse check

No surprise that mortgage rates fluctuate. If you are thinking about purchasing a home or maybe considering refinancing your current mortgage, then you want to be up to date on mortgage rates.

Mortgage rates April 10, 2024
According to Freddie Mac, the 30-year mortgage rate for the week of April 10, 2024 stands at 6.88%. This reflects a 6 basis points increase from the previous week's rate.
Note: A basis point is equal to one-hundredth of one percent (0.01%). In numerical terms, if the mortgage rate changes by 20 basis points, it means the rate has changed by 0.20%.
Additionally, Freddie Mac reports that the 15-year mortgage rate for April 10, 2024 is 6.16%, indicating a 10 basis points increase from last week’s rates.

What does the mortgage rate mean for you?
Mortgage rates play a vital role in determining your monthly payment. Let's take a look at the avergage interest rates (APR) for April 14, 2024 based on Zillow data for borrowers with a high credit score (680-740) in the United States:

  • For a 30-year conventional loan, the interest rate is 7.09%.
  • If you opt for a 15-year conventional loan, the interest rate stands at 6.29%.
    Using the rates mentioned above, a $279,082 30-year-year mortgage would result in a monthly payment of $1,874. On the other hand, a 15-year mortgage would require a monthly payment of approximately $2,399.

Experience a smooth mortgage process: Shop around and get pre-approved today!
Shopping around for mortgages and getting pre-approved can make your home-buying or refinancing process easier. Ready to take the plunge? Check Out mortgage rates now for the best options available.