What is the LIBOR Index?
LIBOR is
an extremely important financial term although until the recent
banking intervention by governments many consumers were
unfamiliar with these five letters. First, lets explain what
LIBOR is.
LIBOR stands for the “London Interbank Offered Rate”
This interest rate is of particular importance to consumers since its core importance within the financial world is to assist in determining the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (also known as the interbank market)
You live in the USA - what would interest rates in the London wholesale market have to do with me you may ask? Most financial institutions operate on a global basis and London is simply one of the largest financial hubs where banks meet to borrow money from each other and sell securities, trade notes etc. In fact, it could be London or Bora Bora - the location of where the LIBOR rate is based doesn't really matter. What matters is how important it is to keep this rate low and steady so banks have the liquidity they need to borrow funds. This "cost of money" directly impacts interest rates on home loans, credit cards, auto loans and pretty much every consumer loan product offered by banks.
In recent years, many US consumers started hearing about the term LIBOR from the popularity of now infamous “interest only” and “option arm” mortgages where interest rates for these particular types of home loans were tied to movements in the LIBOR. While these mortgage types have received very bad reviews in the marketplace due to the foreclosure problem the LIBOR is and always been the popular choice for commercial lending ever since its inception. Consumer loan programs may have been put together wrong but the fact is the LIBOR is quite a steady and reliable financial index.
Unlike the prime rate, LIBOR has actually quite a few different interest rates including a 1-Month LIBOR, 3-Month LIBOR, 6-Month LIBOR and more.
LiborIndex.com has a automatic feed for current LIBOR Rates to the right so bookmark this page for future reference.
- View and learn about the US Prime Rate »
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