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Yesterday, the London interbank offered rate, or LIBOR rate, rose to nearly nine-year highs at 6.9% -- up more than a full percent in just the past week! Such an elevated level in this important lending rate signals a general unwillingness among big banks to extend credit. Many Adjustable Rate Mortgages or ARM's are based on this rate.
The reason for this is simple, LIBOR doesn't reflect a mandated target rate of interest set by a government entity (such as the Federal Reserve); instead LIBOR is a market rate of interest set by big banks around the world who submit open market offers to lend money to one another on a short term basis in the normal course of doing business. Recently, this normal business of lending has slowed sharply, as reflected by sky-rocketing LIBOR rates. If you have an ARM based on the LIBOR rate, hang on to your hat, your loan is about to go up significantly at the next change date.
Have Adjustable Rate Mortgage? This May Be Bad News |
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