sgip
Well-known member
So this week all the shouting was about how "the Fed will increase rates" and how "the Fed won't raise rates". Meh.. Who knows what the Fed will do and so much blood and treasure has been spilled over the subject so far that it's getting pretty dull to re-hash ad nauseum.
What is getting interesting to me are the increasing LIBOR rates. With 99.999% of ARM loans tied to LIBOR, you'd expect to hear quite a bit about it by now. Here's a link to a monthly chart for all LIBOR loan rates over time. Be sure to highlight the last 3 years and drill down to what's going on:
http://www.macrotrends.net/1433/historical-libor-rates-chart
If the chart doesn't pull, here's an handy dandy example of why this trend will be newsworthy soon (IMHO)
July 2014 6 month LIBOR - 0.40 + 2.25 Margin = 2.65 effective rate. (yawn)
July 2015 6 month LIBOR - 0.49 + 2.25 Margin = 2.74 effective rate (meh)
July 2016 6 month LIBOR - 1.09 + 2.25 Margin = 3.34 effective rate (huh?)
The trend isn't friendly. Remember, LIBOR isn't a Fed controlled rate and something is up. For most borrowers who took out 5/1 ARMs in 2012-2013, may I suggest it may be time to avoid a 2017/2018 reset if present trends continue? For purchase loan seekers, it will be important to know that some very low ARM rates are not qualifying you at the start rate, but at index plus margin or more. That qualifying issue could magnify in 2017 if LIBOR does not reverse.
An FYI from SGIP.
What is getting interesting to me are the increasing LIBOR rates. With 99.999% of ARM loans tied to LIBOR, you'd expect to hear quite a bit about it by now. Here's a link to a monthly chart for all LIBOR loan rates over time. Be sure to highlight the last 3 years and drill down to what's going on:
http://www.macrotrends.net/1433/historical-libor-rates-chart
If the chart doesn't pull, here's an handy dandy example of why this trend will be newsworthy soon (IMHO)
July 2014 6 month LIBOR - 0.40 + 2.25 Margin = 2.65 effective rate. (yawn)
July 2015 6 month LIBOR - 0.49 + 2.25 Margin = 2.74 effective rate (meh)
July 2016 6 month LIBOR - 1.09 + 2.25 Margin = 3.34 effective rate (huh?)
The trend isn't friendly. Remember, LIBOR isn't a Fed controlled rate and something is up. For most borrowers who took out 5/1 ARMs in 2012-2013, may I suggest it may be time to avoid a 2017/2018 reset if present trends continue? For purchase loan seekers, it will be important to know that some very low ARM rates are not qualifying you at the start rate, but at index plus margin or more. That qualifying issue could magnify in 2017 if LIBOR does not reverse.
An FYI from SGIP.