From August 2014 to July 2015, the LIBOR rate moved from 0.58 percent to 0.77 percent. Although the rate fluctuated in the last half of 2014, it climbed steadily from January to July 2015.Continue Reading
LIBOR is an acronym for London Inter-Bank Offer Rate, the rate that banks in London offer for loans among banks. The LIBOR rate is important for homeowners or home buyers because it is one of several benchmark rates used to determine adjustments in variable rate loans, including mortgages. The LIBOR rate's changes are typically smaller than those of the prime rate.
Bankers tie variable rate loans' interest charges to index rates such as the LIBOR rate. The variable rate loan then changes as the index rate changes due to economic conditions. Using an index rate as the starting point, bank and other loan originators add percentage points, termed a margin, to the index rate to determine the final interest rate. This margin stays constant through the life of the loan.
While the LIBOR rate is one of the most common, other index rates include the Bond Buyer's 20 bond index and FNMA 30-year mortgage commitment for delivery within 60 days. Bond Buyer's is a daily publication that tracks the prices of 20 municipal bonds. These prices are assembled into the bond index. The FNMA mortgage commitment rate is the required net yield needed for mortgage lenders to sell their loans to Fannie Mae.Learn more about Accounting