A Libor mortgage may be just what you need! Libor mortgages offer several advantages over other types of loans, depending on your circumstances. Libor mortgages are adjustable rate loans. But, there are some differences between Libor loans and regular adjustable rate loans.

Libor stands for London InterBank Offered Rate. It is the interest rate offered for U.S. dollar deposits. A group of London banks sell the holdings for these loans. Libor mortgages, as they are called, offer a variety of different rates that are quoted for different deposit maturities. The loans are adjustable rates or ARM’s. The interest rates are tied to the Libor rates. For example, after the specified time, the Libor mortgage rate will adjust to the rate of the specific group to which it is tied. These loans will adjust just as the Libor adjusts over the course of the term. Libor has come about because of foreign investors looking to minimize their interest rate risk on dollar-denominated investments.

As with any adjustable rate loan, there are risks involved. For those choosing this option, they need to carefully weigh the mortgage rates of Libor loans with the unreliability of the interest rate. Let us explain. The Libor mortgage rate adjusts based on the ups and downs of the interest rate. They can change based on many occurrences in the world. It is likely that they will change from quarter to quarter.

Mortgages that have an adjustable rate like the Libor mortgage offer some good and some worrisome benefits. For example, if the economy is moving toward a recession in which the Federal Reserve is trying to encourage recovery, interest rates may be lowered. If interest rates are tending to go down, a Libor mortgage can be a great thing. But, in times when interest rates are climbing, a Libor rate mortgage can be costly.

In the end, it is up to you and what you think is important as to whether or not you should lock in a mortgage rate or use an adjustable rate mortgage. You may even want to talk to your financial advisor about which is the right loan option for you. To determine if it is the right type of financing for you, simply compare and contrast your options between a Libor mortgage and a conventional mortgage, and be aware that it is impossible to predict how high interest rates could climb over the term of your loan. You can learn more about the Libor mortgage here.