How does the LIBOR affect mortgage rates?

Question

Does it affect fixed rate mortgages?

Answer 1

On adjustable rate mortgages tied to the LIBOR, there is a one to one impact.  On fixed rate mortgages the LIBOR is the rate banks charge one another to loan money to each other.  It is primarily an international bank market.  Very large banks participate and it is the primary interbank market, followed by the Federal Funds market, which is only open to National Banks and state banks that are Federal Reserve Member banks.  So it affects what banks have to pay to support the mortgages.

Answer 2

Think of the LIBOR rate as the Prime rate. In the US, mortages are based on the prime rate. So if the prime rate goes up, mortgage rates will tend to do so too.

Well the same applies to LIBOR. The only difference is that LIBOR is for European mortgages instead of than US. But the basic concept is the same.

Answer 3

Interest only mortgage rates are usually based on fixed repayments. However, there are some cases when they are based on adjustable-rate payments. Regardless, interest-only mortgage rates are always linked to the libor index.

Libor stands for London Interbank offered rate. It is a fancy term that demonstrates the interest rate offered by certain groups of banks in London, as they relate to matured US dollar deposits. There are a number of benefits associated with interest-only mortgage rates.

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