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Greg,  in 94043

My home loan is indexed on LIBOR. Am I safer than someone who is indexed off of the Fed rates?

Asked by Greg, 94043 Wed Sep 17, 2008

My first mortgage is a 5 year fixed rate home loan with 2 years left before it becomes an adjustable loan. The very recent takeover of Freddie Mae and Fannie Mac adds a lot of uncertainty to what will happen with rates, but is a loan indexed off of LIBOR any safer than a loan indexed off of the Federal Reserve rates?

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The daily Libor is given once per day. From this Monday to Tuesday it more than doubled (3.1% to 6.4% or something). Today's release shows it backed down a bit to about 5%. So yes, the Libor did in fact double in one day... but presently it's "only" up 60%+ over two days.

ARM-tied Libors generally use 3-month or 12-month Libor rates. They have not changed. And that is ONLY because the don't fluctuate daily. The 12-month Libor rate is released, I believe, once per month (the second business day of each month??)

If the daily Libor does not fall rapidly, the 3 and 12 month rates WILL spike very shortly. I can't think of scenario where the daily Libor rate would run higher than the longer term rates. This spike in the overnight Libor is a big deal. I'm sure Ryan knows that.
0 votes Thank Flag Link Wed Sep 17, 2008
Thanks Ryan....Did it jump yesterday and then come back down? Or never jumped?
0 votes Thank Flag Link Wed Sep 17, 2008
Luke... No it didnt. That was yesterday. And and nothing to do with most mortgages they are based on the 1 year. These are the current rates. Whoever wrote the article you posted is an idiot.
0 votes Thank Flag Link Wed Sep 17, 2008
hi.....the treasury bond is the "indicator" for mortgage backed you pull into the gas sation because your gas gauge says you are low on gas?.or because your tank is about empty...and you might have to walk?.....mute point!...bob now- farmington, michigan....
0 votes Thank Flag Link Wed Sep 17, 2008
Hey Ryan the "real estate pro",

The LIBOR did double

Link below
0 votes Thank Flag Link Wed Sep 17, 2008
Greg, First a correction. LIBOR stands for the "London Interbank Offered Rate". It serves the same purpose in international Bank to Bank lending as does the Fed Funds rate in the U.S.A. That is the Central Banks rcommendation for the interest rate charged for overnight or short term lending between banks.
Today it was 5.03125% compared with 6.4375%.
For reference the Fed Funds rate is currently 2%
The advice given regarding asking your lender to allow you to switch to a 30 year fixed needs to be combined with a review of all other loan options performed by a competent mortgage broker. There could be a big difference between what your current lender offers and what is available with other alternatives in the broader market.
Given your 2 year time frame your probable refi needs to be guided by pragmatism, not faith or rumour.
A small but worth mentioning correction to one previous comment. Mortgage interest rates are not related to the 10 year Note (It is not a bond). This is a common falacy even among the pundits from the mass madia. It is not unusual to see them going in opposite directions day-to-day.
Mortgage interest rates are driven by prices on Mortgage Backed Securities. End of story.
Your question regarding one index being safer than anothe is best answered by going to This site will give you all the historical date needed to make your own determination.
Sorry if this is a bit long winded but was not a question that would be served by a glib answer.
Good luck,
Bill McCord C.M.P.S.
0 votes Thank Flag Link Wed Sep 17, 2008
good evening greg.......great question....your libor a.r.m. will do nothing but go up....they do not go down.....nor do they ever stay at the rate when you closed...also, they adjust every six months upwards rather than every 12 months like a treasury a.r.m.does...please refer to the "adjustable rate rider" that is in your closing docs from the escrow co. when you will state the highest the rate can and will go up to..and also how much the rate can climb for each six month can be as high as 1.5% every six months....(3% per yr.)....(if you wait to do something, closer to the time that your a.r.m. adjust are in a state where there are declining market values (doesn't mean that your home is dropping in value) it will be tougher and tougher to do something...because the amount you need to borrow could be below what the value of your home will allow you to borrow......respectfully, i have to disagree with both earlier responses.... neither of them have addressed your question, nor offered you a something right away before you don't have the luxury of doing anything,,,fannie and freddie a.r.m. rates are based on the 1 year treasury bond....and hence called treasury a.r.m.s......they do go up and down..the 30 yr fixed rates are based upon the 10 yr treasury bond.. .you need to do a rate and term refinance right away..and lock into a 30 yr fixed rate...lastly.....paying off your second mortgage when you re-do the first needs to be researched may make sense and be possible.........perhaps not.....i hope that helps........bob mcclure- mortgage now- farmington, michigan...licensed in 22 states including your's.......
0 votes Thank Flag Link Wed Sep 17, 2008
I guess Ryan wasn't reading the news today.

"The Libor surge was most striking, with the overnight dollar rate more than doubling from 3.10625 percent to 6.4375 percent, a record jump. "
0 votes Thank Flag Link Wed Sep 17, 2008
Greag they are pretty similar in they only go up, your best bet is to call your lender and ask for a loan modification to a 30 year fixed rate. if you do not get anywhere at first ask for the home retention department and tell them you will not be able to aford the payments if they go up; and you need a loan mod to a 30 year fixed, be insistant but sincere, if they are not assisting you then dont hesitate to ask for a manager. goo dluck, you should get your rate fixed with a little effort
Web Reference:
0 votes Thank Flag Link Wed Sep 17, 2008
I dont know what the first person is talking about saying it doubled today. Its not true. LIBOR stands for London Inter Day Offering Rate. Its pretty steady and many banks use that to adjust mortgages. Its fairly stable but its currently at around 3.13%.... that is your floor rate your margin is prolly 2-3% above that. You could easily find a fix rate better then that right now.

16 years mortgage real estate experience
0 votes Thank Flag Link Wed Sep 17, 2008
I just read somewhere today that LIBOR rates doubled today. Good Luck.
0 votes Thank Flag Link Wed Sep 17, 2008
Fed rates are dictated by a board trying to manage money supply. LIBOR pays more attention to risk. At this moment, it's spiking reflecting the risk in the marketplace (see link). In two year... who knows.
0 votes Thank Flag Link Wed Sep 17, 2008
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