LIBOR Index – What is It?
London Inter-Bank Offered Rate (LIBOR)
LIBOR Index is the rate of interest that member banks of the British Bankers’ Association charge when they lend money to one another in the wholesale money markets in London, somewhat similar to our Fed Funds Rate. In fact, the LIBOR Index tends to closely track the US Fed Funds Rate. LIBOR Index is a standard financial index that is used globally and in US capital markets. The Wall Street Journal publishes the LIBOR index on a daily basis.
In general, changes in the LIBOR Index have tended to be smaller than changes in the Prime Rate. There are several LIBOR maturities much like U.S. Treasuries, but the 1-month and 6 month are the most readily used and available LIBOR indexes for mortgage loans. Although they are becoming increasingly more common in use for consumer loans and ARMs, LIBOR Indices have traditionally been a reference figure for corporate and commercial financial transactions.