What Causes 1-Year LIBOR to Change?

The London Interbank Offered Rate (LIBOR) is the primary index used on adjustable rate mortgages in the United States.  It's the interest rate that banks pay to borrow money in the London money markets.

LIBOR is published by the International Continental Exchange (ICE).  It's calculated through a survey that the ICE Benchmark Association (IBA) sends to banks who trade and do business in the London money markets.  The US Dollar 1-month LIBOR is what a bank would pay to borrow US dollars for 1 month. The 6-month LIBOR is what a bank would pay to borrow money for 6 months. The 1-Year LIBOR is what a bank would pay to borrow money for 1 year.

Even as New York city is home to the largest stock market in the world, London is home to the largest money market in the world. Banks who do business internationally tend to trade and borrow money from one another in the London money markets. That's why LIBOR is the most widely used index in the world, and that's why the US Dollar LIBOR is used as the primary index on adjustable rate mortgages in the United States... it is the most accurate measurement of a bank's cost of money.

As you can see from the chart, the US Dollar 1-Year LIBOR closely tracks the Fed Funds Rate, which is the interest rate that banks pay to borrow overnight funds from other banks in the US.  The Fed Funds rate is controlled by the Federal Reserve.  Therefore, LIBOR is likely to change whenever the Fed changes or is getting ready to change the Fed Funds rate.

LIBOR began going up in 2015 in anticipation of the fact that the Fed was likely to increase the Fed Funds rate later that year.  Please contact me for further details or to evaluate your mortgage options!

Do You Agree with Clinton or Rubio on College Funding?

What do Hillary Clinton and Marco Rubio have in common?

As it turns out, both of these presidential candidates have recently come out in favor of large-scale reforms to college funding in the US.

Highlights of the Clinton Plan include full government funding of community colleges, and capping the repayment obligations of student loans to 10% of the graduate’s annual income over 20 years.

Highlights of the Rubio Plan include an “equity financing” model that would allow private investors to pay for a student’s tuition in exchange for a claim on a certain portion of his/her future earnings.  The Rubio plan also includes the ability for students to spend part of their federal aid on vocational programs outside of traditional colleges.


Click here to view an interesting article in The Economist.  You can also visit the web sites of the Clinton and Rubio campaigns for more details.