DECEMBER 12TH, 2018

LIBOR Mortgages

London Interbank Offered Rate, LIBOR=acronym. The rate of interest at which banks borrow monies from banks in the London Interbank MARKET. A consumer could utilize a LIBOR Mortgage as an alternative to a traditional Adjustable-Rate Mortgage. LIBOR ARM Mortgages provides consumers with aggressive initial rates that are typically quite lower than other ARMs. Periodic as well as Lifetime Caps generally protect consumers from significant fluctuations in interest rates.

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LIBOR Mortgages Program Details

• One Month LIBOR Mortgages – The 30-day LIBOR is usually an Adjustable-Rate or Interest Only mortgage, indexed accordingly to the London Interbank Offered Rate. The program provides that the consumer’s mortgage payments will change every month, according to LIBOR. The One-Month LIBOR is the best strategy to take advantage of market fluctuations. Consumers MUST be flexible financially-wise for this program or they may find themselves in default/foreclosure. This program does come with caps-differs depending on lender, the cap for the first adjustment is typically 1%, thereafter, each monthly cap is also 1%, with the lifetime cap being 6% over the starting rate. Consumers must be prepared to place money down for this program.

• Six Month LIBOR Mortgages – All the same criteria shown just above applies and is the same EXCEPT that: the mortgage payments will change every six months. Additionally, this may be a better for the consumer than a 1 Year LIBOR as one can take advantage of the changing market more frequently. Should the market rate begin declining, the consumer will be able to take advantage of it more quickly than a 1 Year program but on the other hand, should rates are increasing, the consumer’s bill will have a slower reaction time. As such, a 6 Month LIBOR is somewhat comparable to an Adjustable Rater Mortgage which is indexed by COSI.

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• One Year LIBOR Mortgages – This program is an ARM , indexed by LIBOR and the first year of the LIBOR will offer low, fixed-rates. There are some lenders that even allow the consumers to pay only interest for the first year. All the same criteria shown just above applies and is the same EXCEPT that: the mortgage payments will change annually. A good choice if the consumer wants to keep the first year’s payments low. This program generally has caps that has a 2% annual cap, and a 6% lifetime cap. Also a popular election for consumers who are refinancing.

• Three Year LIBOR Mortgages – This program is an excellent mortgage for consumers who need predictable, low monthly payments for the first 3 years. It’s an ARM based on the LIBOR index. By obtaining this loan, the consumer will only pay interest (low, fixed-rate) and then after the initial three years, the payments will change annually. A benefit is that this program will allow one to qualify for a larger loan than one would be able to obtain with a different plan (larger loan means ability to purchase a more expensive home. A down payment will be required.

• Five Year LIBOR Mortgages – Same criteria as a 3-Year EXCEPT for: after the 5 Year initial term, the payments will change annually. The program has caps–expect a 2% annual cap & a 6% lifetime cap. The program requires a down payment as well as the possibility of a prepayment penalty, depending on lender.

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