The average subprime borrower facing an adjustable payment for the first time next month would face a monthly payment increase of about 18 percent based on Libor rates as of Sept. 30, rather than the 10 percent that would have occurred based on the rates on Sept. 15. Libor rates have soared since the bankruptcy of Lehman Brothers Holdings Inc. last month as financial companies hoard cash.
About 121,000 mortgages will reset for the first time next month, according to the Citigroup report, which looked at only securitized mortgages. About 1.8 million loans have already begun adjusting based on benchmark rates, the report said, while 3.7 million face resets scheduled for after next month.
LIBOR is the interest rate that banks charge each other for one-month, three-month, six-month and one-year loans. LIBOR is an acronym for London InterBank Offered Rate. This rate is that which is charged by London banks, and is then published and used as the benchmark for banks rates all over the world.
LIBOR is compiled by the British Bankers Association (BBA), and is published 11 am each day in conjunction with Reuters. It is comprised from a panel of banks representing countries in each currency.
LIBOR is also used to guides banks in setting rates for adjustable-rate loan, including interest-only mortgages and credit card debt. Lenders typically add a point or two, which is their margin.
What It Means to YouIf you have an adjustable-rate loan, when your rate resets, it is usually based on the LIBOR rate. Even if you have a fixed-rate loan and pay off your credit cards each month, an increasing LIBOR will affect you by making all types of consumer and business loans more expensive. This reduces liquidity, which slows economic growth.
LIBOR is compiled by the British Bankers Association (BBA), and is published 11 am each day in conjunction with Reuters. It is comprised from a panel of banks representing countries in each currency.
LIBOR is also used to guides banks in setting rates for adjustable-rate loan, including interest-only mortgages and credit card debt. Lenders typically add a point or two, which is their margin.
What It Means to YouIf you have an adjustable-rate loan, when your rate resets, it is usually based on the LIBOR rate. Even if you have a fixed-rate loan and pay off your credit cards each month, an increasing LIBOR will affect you by making all types of consumer and business loans more expensive. This reduces liquidity, which slows economic growth.
