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I have an adjustable rate mortgage based on LIBOR and the lender still has not said what they plan to do. The presumed replacement rate (SOFR) seems to be pegg
by hardtke 5y ago
I have an adjustable rate mortgage based on LIBOR and the lender still has not said what they plan to do. The presumed replacement rate (SOFR) seems to be pegged near 0% which would be good.
- gadders 5y agoIf you're in the US and the mortgage is dollar-based I would expect you to be transitioned to a SOFR-based loan, possibly with a credit adjustment spread.
- codebolt 5y agoWhat about SONIA, isn't that the dollar based equivalent?
- NoboruWataya 5y agoSONIA is the Sterling Overnight Index Average, an overnight rate for pound sterling.
- EugeneG 5y agoYeah there will be a spread, won’t go from LIBOR+0 to SOFR+0, but to SOFR+0.20% for example
- javajosh 5y agoWhy is this purely up to the lender? And if it is, of course they'll add something. You can't have individuals borrowing money interest free now, can we? (Institutions...that's more than fine, its expected.)
- stanleydrew 5y agoIt's not "purely up to the lender." It's agreed upon in a mortgage contract, which the borrower signed. Both parties decided that it was a good idea, otherwise there wouldn't have been an agreement.
- postalrat 5y agoHow do you know all mortgage contracts have a clause for if libor isn't available?
- yufeng66 5y agolegally the new definition of 3 month Libor is sofr + 26.161bps
- xtracto 5y agoCompletely tangentially related: I love basis points. Up until I started working in the FinTech I could not grasp the need for it... but after much repeating "x% plus 3%" and then having to clarify that is 300 basis points and not x*1.03, it got my eyes opened.
- catothedev 5y agoIt's also useful for negotiating rates. Saying you want a rate to be .2% lower is awkward and wordy. Saying 'can we take it down 20 bips?' sounds much more pro ;).
- WanderPanda 5y agoYour expressions are not equivalent
- Dylan16807 5y agoHow so?
- hardtke 5y agoI'm tied to the 1 year LIBOR -- do you know what that will be?
- twic 5y ago0.71513% https://assets.bbhub.io/professional/sites/10/IBOR-Fallbacks-LIBOR-Cessation_Announcement_20210305.pdf https://assets.bbhub.io/professional/sites/10/IBOR-Fallbacks...
- swedishturnip 5y ago
- rwmj 5y agoIn my previous job we sold LIBOR (and Euribor) mortgages, so I have been wondering what the lender would do about those, since as I understand it the LIBOR element was written into the 25+ year mortgage contracts. I guess I found out - nothing!
- stanleydrew 5y agoIf you read your mortgage contract I'm pretty sure you'll find a clause related to what your rate is based on if LIBOR is no longer available.
- codebolt 5y agoNote that when SOFR starts to fluctuate, you wont know your actual interest payment before the end of each payment period, since these rates are applied on a daily basis, in arrears.
- riskneutral 5y agoCME Term SOFR contracts exist to address this. 1M, 3M, 6M, and 1Y Term SOFR rates are published [1]. A typical 3M LIBOR contract can just substitute it with 3M SOFR without impacting the basic mechanisms, like knowing in advance how much interest you will owe over the next period. [1] https://www.cmegroup.com/market-data/cme-group-benchmark-administration/term-sofr.html# https://www.cmegroup.com/market-data/cme-group-benchmark-adm...
- bzbarsky 5y agoThat's not how mortgages work, at least in the US. There's a limit to how often the rate changes, etc. Just looking at one now, and it's set up as follows: 1. Rate is allowed to change only on the 1st day of every 6th month (after the initial flat-rate period ends). 2. On that day, the new rate is set to a spread + the max of 0 and the value of the 30-day Average SOFR Index (as published by the NY Fed) as of 45 days before the day when the rate is changing. Nothing being applied on the daily basis here.