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Mortgage Advisor & Director
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 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 typically only adjusted every 3 to 6 months.
How does a LIBOR mortgage work?
The LIBOR mortgage rate is comprised of the LIBOR 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.
What are the benefits of 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 disadvantages of a LIBOR mortgage?
If you are looking for complete certainty of repayments, then a LIBOR mortgage may not be for you.
With a 9 or even 6 month rate change interval, you may find the LIBOR mortgage is a good compromise between low rates and repayment certainty.
Where can I find more information?
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