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AAFMAA Blog

LIBOR changes and their effects on US Mortgages

2017-08-17

According to Chad Bray, at the New York Times, in 2021 regulators will replace LIBOR (the London Interbank Offered Rate) with a system of rates that are more closely tied to interest rates on actual loans. LIBOR is the financial benchmark that is tied to an estimated $350 trillion of financial instruments like bonds and derivatives and is used to set many variable interest rate transactions, including some adjustable rate mortgages (ARMs). Back in 2012, LIBOR came under fire when it was revealed that several market participants were falsifying their rate reports, which are used to calculate LIBOR, in order to profit from transactions linked to the benchmark.

Although official changes won’t occur for another few years, you may wonder how this impending change might affect ARMs both in the months leading up to the change and in the post-LIBOR era. With change comes uncertainty, and with uncertainty comes higher costs. While we are likely to see some initial volatility in rates, industry experts do believe that the time frame for the changes will enable the market to adjust and settle.

What should a military family with an ARM do? Review the details of your ARM and determine if the interest rate is tied to LIBOR. Usually this information is available on the account management website of your mortgage servicer. Alternatively, it will be listed in documentation you received when you closed on the loan. If you don’t have the documents, request the documents from your mortgage servicer. ARMs can be complex for people new to the concept. Education is an important first step to getting the best mortgage rate, and you can start by seeking out more information from the team of experts at AMS by calling us at 844-4-AAFMAA or online at aafmaa.com/mortgage.