LIBOR Mortgage

catherine_h_2

Hi not sure if I'm posting in the right area, so sorry if I'm in the wrong place.:o

I was just wondering if anyone can explain the LIBOR rate in laymen terms to me. My mortgage is currently fixed but at the end of the term the SVR is 2.49% above LIBOR rate and although I've looked at sites nowhere seems to explain it properly. I've looked at http://www.swap-rates.com/UKSwap.html as it seemed quite simple but I can't work out where the rates come from?!?!?! I do hope I'm making sense and any help is greatly appreciated.

Thanks:D

luckyfool

Libor is calculated everyday by the British Bankers Association and published in the FT. It is normally the 3 month Libor rate that most mortgages/borrowing is linked to (the average cost certain banks lend money to each other for 3 months for), and even then the mortgage lenders tend to reset their own Libor Rate every quarter based on some kind of average of the 3 month Libor rate over the previous 3 months.

If you do a search on the forum for Libor this is covered elsewhere as well.

RomansProperties

http://markets.ft.com/ft/markets/reports/FTReport.asp?dockey=MNY-090109

Is the site I used.
The 3 month LIBOR was 2.38 so your mortgage if they set their rate yesterday would be 4.87%.
You will have to check your mortgage documents as different companies set their rates at different times.
Eg. Paragon set their 3 month libor at 2.8% on the first of Jan, Next reset is 1st April.

Cheers

astreix

If you are interested in a bit more detail, 16 banks contribute to the GBP Libor You can find a list of these banks at http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=145&a=13777&artpage=all

Everyday at 11:00 AM these 16 banks provide the BBA with the rate at which they were able to borrow money in Sterling from other banks. The BBA then uses this rate to work out what is the average rate at which banks were able to borrow from each other. Those rates are the GBP Libor Rates.

Most probably you will have your rate linked to 3-month GBP Libor, which is the average rate at which banks were able to raise money for 3 month duration from each other.

Also check your terms - it is likely that your rate will reset only once every 3 month on pre-determined dates.