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Interest Only Libor Loans

An interest only LIBOR (London Interbank Offered Rate) mortgage is an adjustable rate mortgage that calculates the interest rate using the LIBOR index and uses a pay back option of paying only the interest accrued during a set amount of time.

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An adjustable rate mortgage, called an ARM for short, is a mortgage with an interest rate that is linked to an economic index.  An index is a guide that lenders use to measure interest rate changes and the London Interbank Offered Rate (LIBOR) is an index. It is the rate most international banks are charging each other on large loans. LIBOR is the most popular index based on spot rates. The LIBOR tracks the rates at which London banks pay to borrow one another’s reserves.

Interest Only Mortgages

An Interest-Only mortgage is not actually an interest only mortgage but actually an interest only method of payment. There is no such thing as an interest-only mortgage, because eventually you’ll have to pay the loan principal. The interest only payment method can be combined with any other kind of traditional mortgage. Interest-only payments do not run for the entire term of the loan, not even when used in conjunction with a fixed-rate mortgage. Interest-only payments expire at the end of a set number of years. After the interest-only period ends your payment will rise to include both principal loan amount and interest.

Most LIBOR interest only mortgages take the 30 year option. A 30 year interest-only loan is one that gives you the option of paying just the interest  or the interest and as much principal  as you want during an initial period of a  30 year mortgage. You can find 30 year interest only loans that are interest-only for the first three, five, seven or ten years.

As with any loan, you will have to weigh the advantages and disadvantages. If you choose to make the interest-only payments then your monthly payment will be lower than it would be with an interest and principal combined payment.

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