OK, SO WHAT IS THE LIBOR RATE?

By
Real Estate Agent with Re/Max Professional Associates 74203

Libor stands for London Interbank Offered Rate (LIBOR).  Who cares about Libor?  We all do if you borrow money.  This is the interest rate that banks borrow money from other banks.  The Libor rate is a filtered average of bank's interbank deposit rates for larger loans that have maturites between overnight and one year.  Obviously that rate is above the loan rate.

The Libor rate is then used to determine the loan rate for less perferred borrowers.  Loan rates are predicated on risk.  The riskier the loan the higher the rate.  The mortgage instrument would refer to the adjusted mortgage rate as being 2, 3, 4 or more percent higher than the Libor rate at the time of adjustment.

 

 

 

 

 

 

 

1-Month

3-Month

6-Month

12-Month

January of 2011 0.2606 0.3034 0.4554 0.7818
February of 2011 0.2629 0.3119 0.4641 0.7934
March of 2011 0.2533 0.3084 0.4608 0.7797
April of 2011 0.2214 0.2814 0.4423 0.7701
May of 2011 0.1978 0.2607 0.4141 0.7392

1-Month

3-Month

6-Month

12-Month



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More on LIBOR

The London Interbank Offered Rates (LIBOR) can be described as the wholesale cost of money in the London interbank money market. Though the LIBOR rates are fixed in the United Kingdom, American consumers need to understand how LIBOR works, since LIBOR is used as an index in the pricing of many types of consumer loans in the United States.

How LIBOR Works

LIBOR is the average interest rate at which a select group of banks that participate in the London interbank money market can borrow unsecured funds from each other. There are many different LIBOR rates (maturities range from overnight to 12 months) for numerous currencies, including Eurodollars. A Eurodollar is an American dollar on deposit in any bank outside the United States, and is therefore not subject to regulation by the U.S. Federal Reserve.

LIBOR rates are fixed every UK business day by the international media company Thomson Reuters, in association with the British Bankers' Association (BBA), a not-for-profit trade association.

Just before 11:00 a.m. GMT, the BBA polls a specific panel of highly reputable, high-volume banks which participate in the London wholesale money market. The BBA finds out the rate at which each bank on the panel could borrow Eurodollars from other banks, for specific maturities. The BBA figures out the central tendency -- the interquartile mean -- for each maturity, then publishes these rates at about 11:30 a.m. GMT.

Three American banks are included in the panel surveyed by the BBA for Eurodollar fixing: Citibank, Bank of America and JP Morgan Chase. There are also 17 non-U.S. banks surveyed for Eurodollar fixing in London, bringing the total Eurodollar panel count to 20. To get the interquartile mean for each maturity, the BBA starts with the 20 rates, discards the five lowest and five highest rates, then determines the average of the remaining 10 rates.

Back in the mid-1980's, the international banking system adopted LIBOR as a much needed benchmark for short-term, interbank loans. The LIBOR rates are now globally recognized indexes used for pricing many types of consumer and corporate loans, debt instruments and debt securities across the globe. For example, LIBOR is used as a benchmark for the vast majority of interest-only loans in The United States.

copyright © 2011 Steve "AmCy" Brown, www.FedPrimeRate.com



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Rainmaker
1,055,689
James Dray
Wise Custom Realty - Bentonville, AR
AR., MO., or OK. I can find the home for you.

So much data this early in the morning and at my age...???

Jul 05, 2011 06:34 AM #1
Ambassador
2,466,711
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

I love the LIBOR.  The LIBOR interest rate is not nearly as pertinent as the margin.

My LIBOR is locked in each January for the coming 12 months.  This year, I'm at 3.01% which is not bad.

Jul 05, 2011 06:41 AM #2
Rainmaker
1,089,501
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

For years increases in commercial leases were tied to the CPI * there are hundreds of these rates and they were never properly defined in the lease....thank you for this explanation!

Jul 05, 2011 06:47 AM #3
Rainmaker
1,157,793
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Sorry James.

Hi Lenn - The margin is the key.  3.01% is excellent.

Your welcome Wallace.

Jul 05, 2011 07:24 AM #4
Rainmaker
695,797
Kay Van Kampen
RE/MAX Broker, RE/MAX Solutions - Springfield, MO
Realtor®, Springfield Mo Real Estate

Great information.  I remember the LIBOR from my banking days.  Quite low right now.

Jul 06, 2011 08:22 AM #5
Rainmaker
1,157,793
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Every rate is low Kay but not for long.

Jul 06, 2011 09:00 AM #6
Rainmaker
558,346
Gretchen & Mel Ahrens
ColumbiaGorgeFSBO.com - Hood River, OR

In a prior company our line of credit was tied to LIBOR, usually a lower rate and less volatile than bank's prime.  I did see this go off kilter a couple of times though when the markets were in a state of uncertainty. 

Mel

Jul 14, 2011 04:37 PM #7
Rainmaker
1,157,793
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Thanks Mel & Gretchen.

Jul 15, 2011 12:09 AM #8
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Rainmaker
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Conrad Allen

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