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What is a LIBOR mortgage?
LIBOR is an abbreviation of London Interbank Offered Rate, which is a benchmark rate for transactions between financial institutions.
A 2 year LIBOR mortgage simply means the term that the margin above LIBOR stays fixed. After this point, the mortgage will default onto the lenders' Standard Variable Rate at which point it is sensible to remortgage.
A 2 year LIBOR mortgage uses the LIBOR rate as a reference point and is a blend of variable and fixed. While the interest rate can change within the term, it is generally adjusted every 3 to 6 months over the 2 year term.
How does a LIBOR mortgage work?
A LIBOR mortgage rate starts with the LIBOR benchmark rate with an additional margin set by the lender.
While the LIBOR rate changes daily, borrowers can choose at what intervals the interest rate should be adjusted. Most lenders offer LIBOR mortgages with rate changes at 3, 6 or 9-month intervals with a 3 to 5-year repayment term.
Why choose a LIBOR mortgage?
When interest rates are low, you can find great deals on LIBOR mortgages.
Borrowers will feel the benefits of interest rate reductions. You may be able to protect against spiking interest rates with an interest rate cap, which is available on some LIBOR mortgages.
What are the drawbacks of a LIBOR mortgage?
If you are looking for complete certainty of repayments, then a LIBOR mortgage may not be for you.
With a nine or even six-month rate change interval, you may find the LIBOR mortgage is a good compromise between low rates and repayment certainty.
How can I apply for a LIBOR mortgage?
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