How to Get a LIBOR Loan
What it is
| At a Glance | |
|---|---|
| Loan Type: | Mortgage |
| Lender: | Bank |
| Secured: | Yes |
LIBOR stands for the London InterBank Offered Rate, the interest rate offered for United States dollar deposits by a group of large London banks. There are a few LIBOR banks corresponding to different deposit maturities. To put it another way, a LIBOR is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale or interbank money market.
Rates are quoted for one month, 3 month, six month, and twelve month deposits. A LIBOR loan is an adjustable rate loan, on which the interest rate is tied to a specified LIBOR. After an initial period when the rate is fixed, the rate is adjusted to equal the most recent value of the LIBOR plus a margin that is subject to any adjustment cap. LIBOR loans were developed to meet the needs of foreign investors looking to minimize their interest rate risk on dollar-denominating investments. LIBOR loans offer an initial lower rate period, a subsequent adjustment period, rate adjustment caps, and interest rates ceilings.
Who it's for
A LIBOR loan is attractive to borrowers because it has a combination of financially attractive features. This loan is right for you if during the term of the loan or the time you expect to have the loan, the interest savings early in that period outweigh the risk of interest rate and payment increases later on.
What you need to do to apply
In order to obtain a LIBOR, interested applicants will need to contact a local lending institution and inquire about the different options and rates available. Personal and financial history, including a credit report, will need to be made available to the lending institution. A property appraisal may also be required.