What Is LIBOR? And How Does It Effect Me?

19 Jul What Is LIBOR? And How Does It Effect Me?

As a consumer lawyer who is actively fighting foreclosures on behalf of my clients, I discuss with my clients the different types of mortgages which they have signed onto. If you have an adjustable rate mortgage, the chances are pretty good that your interest rate is tied to LIBOR.

The question that I am most often asked is: With interest rates going down, why are my mortgage payments going up? That is an excellent question. The answer is: Even though Ben Bernacke, the Federal Reserve Chairman, has cut the federal funds rate by 3.25 percentage points over the last year, your mortgage rate is not based on the U.S. Treasury rate, it is tied to LIBOR.

LIBOR is the London interbank offered rate. It is the average rate at which banks in and around London lend money to one another. Interestingly, LIBOR is the rate used worldwide as the rate to set loans. Interestingly, LIBOR has not fallen as quickly as the Treasury Rate. So, if your loan was tied to LIBOR, you did not see your mortgage payments drop.

So, what is a consumer to do? Should you shop around for a mortgage tied to the U.S. Treasury rate or should you continue to stick with the LIBOR rate? Again, another excellent question. I am willing to bet that if you asked five experts this very question tomorrow, you wouldn’t get a straight answer from any of them.

As a consumer, the only way you are ever going to be able to retire is to pay off your debt, including your mortgage, as quickly as possible. By this I mean that you have to make a decision right now: Do I want to live in a debt cycle or a wealth cycle? Simply put: you cannot live in a wealth cycle with debt. You can convert your debt cycle to a wealth cycle by paying off your debt and becoming debt free.

In my opinion, it doesn’t matter what your interest rate is right now. If your goal is to pay off the home or credit card as soon as possible and are committed to it, and actually stick to your plan of attack, the interest rate doesn’t matter because you are eliminating it, then moving on to the next debt.

So make the decision today to live debt free and pay off that mortgage.

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Carmen Dellutri is a proud member of the Florida Bar, and he is a Board Certified Consumer Bankruptcy Attorney, Certified by the American Board of Certification. He practices in the areas of Consumer Bankruptcy and Plaintiff's Personal Injury. He is the principal attorney at The Dellutri Law Group, P.A. The firm supports many charitable and civic causes by donating time and much needed capital to our community. Mr. Dellutri and the other attorneys in the firm routinely speak to students of all ages about various legal and societal issues.
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