Historical Mortgage Trends
6 Month Libor
LIBOR is the acronym for London Inter Bank Offering Rate. LIBOR is the average interest rate paid on dollar denominated deposits traded between a number of major banks in London, England.
For centuries, London has been the center of the international financial market and, as such, has had an enormous amount of funds available for investment. One such recipient of these investment funds has been the mortgage market in the United States. Years ago, these banks purchased mortgages and mortgage backed securities, many of which were based on various U. S. Treasury Bill indices. As the U. S. mortgage market continued to expand and the London financial market continued to increase in size, it is no surprise that the London markets became a larger participant in the U. S. mortgage market. However, the London financial market became less interested in assets that were tied to the U. S. market via treasury indexed assets and more interested in assets tied to the economic climate in which they themselves existed. In response to this change of focus, the U S mortgage market introduced mortgages indexed to the LIBOR.
There are several LIBOR rates widely used in adjustable rate mortgages. While the 6-Month is the most common, a 1-Month, 3-Month and a 1-Year are also available. These LIBOR rates are frequently quoted in the Wall Street Journal and readily available on the internet.