The LIBOR index is rising fast… Refinance opportunity for net branch

The LIBOR index is rising fast… Refinance opportunity for net branch
libor - net branch opportunity

the LIBOR rate has spiked in recent weeks.

What is the LIBOR and why is something your clients should be concerned about?

From a report on Bloomberg this week..
“The overnight Libor rate in U.S. dollars soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers’ Association. The one-week rate rose by more than a percentage point, to 3.88 percent from 2.49 percent on Monday, and the one-month rate increased to 2.75 percent from 2.5 percent.”

LIBOR is short for London Bank Inter Offered Rate. It is a rate index that is set by the British Bankers’ Association.

Created in the mid 80’s the index became widely used in the mid to late 90’s in the US mortgage markets as the preferred index for adjustable mortgages. Most subprime and about 40% of conforming adjustable rate loans are based on a LIBOR index.

Becasue the LIBOR is set by the British Bankers’ Association these loan rates cannot be controlled by the FED.

If the LIBOR’s recent increases continue this means that the adjustable rate mortgage payments that are tied to the LIBOR could more than double at adjustment time.

In the last 5+ years the LIBOR rate has been a safe haven for borrowers looking for the lowest payment.

Most LIBOR based loans are tied to the 6-month index. This means that the rate is a rolling 6 month average. So will a short term spike cause rates to jump? No. But an ongoing increase will.

If you have past clients in a LIBOR rate keep a very close watch on the monthly rate.

This would be a great opportunity to make contact with these clients and make them aware of the possibility and to alert them that they should not wait for the rate to spike before they have an exit strategy.

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