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A Mortgage Mystery: What Happens to ARMs When Libor Goes Away?
The Libor index is going away. For U.S. consumers, its demise is most likely to be felt in adjustable-rate mortgages.
The Libor index is going away. For U.S. consumers, its demise is most likely to be felt in adjustable-rate mortgages.
In a typical ARM, borrowers pay a fixed rate for five, seven or 10 years. After that, their rate resets each year, calculated as Libor plus a margin, often two to three percentage points.
"One issue is, should we be changing our product line now?" said Kirstin Hammond, who runs capital markets for United Wholesale Mortgage, one of the 20 largest mortgage lenders in the U.S. "Does it make sense to offer a [seven-year] ARM tied to Libor when Libor is not going to be around in seven years?"
Click here to read the full article via The Wall Street Journal.
In a typical ARM, borrowers pay a fixed rate for five, seven or 10 years. After that, their rate resets each year, calculated as Libor plus a margin, often two to three percentage points.
"One issue is, should we be changing our product line now?" said Kirstin Hammond, who runs capital markets for United Wholesale Mortgage, one of the 20 largest mortgage lenders in the U.S. "Does it make sense to offer a [seven-year] ARM tied to Libor when Libor is not going to be around in seven years?"
Click here to read the full article via The Wall Street Journal.
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