6 Month LIBOR - 6 Month LIBOR Home Loans are popular because they provide you with the ultimate in low monthly mortgage payments. Rates on these programs are in the 2% to 3% range, and because of the interest only feature, a monthly payment that is incredibly low. The risk with these loans is that the rates will rise, but in most cases you are protected by a 5% cap over the initial start rate, so if you start at 2.5% then the worst case scenario is 7.5%, and that’s not so different than the 30 year fixed rates in the 6% range. Especially once you take into account the monthly savings accumulated with interest over an extended time period. All in all, it’s a good loan for the long or short term holder willing and able to take the risk of a changing monthly payment. This loan requires good credit and is not available to all borrowers.
The Six Month LIBOR ARM is tied to the LIBOR (London Interbank Offered Rate) index, and adjusts at six month increments. A periodic rate cap limits the increase in your rate at each adjustment to no more than 1%.
In addition to the 6 month LIBOR ARM, different adjustment periods are avilable from some of our investors, including the 1 month LIBOR Adjustable Rate Mortgage, the 3 Month LIBOR ARM, and the 1 Year LIBOR Adjustable Rate Mortgage.
It is quite true that the 6 Month LIBOR is known for it's volatility. This volatility often means that the 6 Month LIBOR will move quickly with any change in the worldwide market. Since this is an advantage for the lender, the margins offerred on LIBOR indexed loans are often lower than those on loans that are tied to a more stable index.
The LIBOR sometimes offers the lowest start rate of all the indices. If you're looking for the lowest start rate for an arm (adjustable rate mortgage), most likely this will be the index your rate is tied to for its periodic adjustment. However it's NOT a mortgage index every Loan Professional would usually recommend. While it may often have the best, low-rate feature, it is often also the most volatile index. It is susceptible to frequent movement and in large increments when it does move. Because of its volatility, it is not recommended for the timid borrower.