Libor Index History

Reviewing the Libor index history is a good way to see the various fluctuations in the Libor interest rate over time. The historical index is helpful but it should not be used to forecast future interest rate changes on adjustable rate mortgages (ARMs).

The Libor index is a common starting point for interest rate determination.

The interest rate changes on credit products with variable interest rates - such as credit cards and adjustable rate mortgages - are determined based on a benchmark financial number such as the United States Treasury bill rate or the Libor rate as of a specific date. This benchmark financial number is called an "index." An additional percentage, called a "margin", is added to the index. The resulting percentage is the new interest rate. For example, if the index is 4 percent and the margin is 2.25 percent, the interest rate would be 6.25 percent.

The Libor index is commonly used by United States financial institutions to determine interest rates on credit cards and ARMs. The six-month Libor rate is frequently used as the index for mortgages.

When borrowers shop for a mortgage loan they may be given the option to select which index they want to use as the basis for rate changes on their mortgage. Various options typically would include the United States Treasury bills and the Libor rate.

The lender quotes an interest rate based on the total of the index plus a margin. The loan based on the Libor index typically has a lower margin then a Treasury index. For example, the Libor index loan may have a margin of between 2.5 and 2.50 percent while the margin on a Treasury index loan could be as much as 2.75 percent.

It is sometimes helpful to review the history of both indexes when deciding which index to select for mortgage rate changes. This review will give the potential buyer a general feeling for what the interest rates would have been in the past if either of the indexes had been used.

Mortgage lenders can be a good source of historical Libor index data. They use the information on a daily basis to establish opening interest rates for new mortgage loans. The format of their data, however, may not be as easy-to-use as the formats used on various financial data websites.

A good place to start for Libor rate history is the website of the British Bankers' Association (BBA). The BBA develops and publishes the Libor interest rates every London business day using data from at least eight major banks in London. The BBA website includes Libor index data from January 1986 and provides the daily data in Excel spreadsheet format.

Another excellent website source for the Libor index history is Bloomberg.com. This website provides Libor rates from one month, three months, six months and one year ago. The Prime Rate and the Federal Reserve Target rates are also shown for the same period. This side-by-side rate comparison for the different time periods can be very helpful in determining which index would have resulted in the lowest interest rates.

Historical index data can be a good way to compare various rates at different points in time. It can point out how a various index reacted. For example, some financial experts feel that the Libor index is less volatile, maintaining fewer ups and downs than the Treasury index. It is also assumed by some people that the Libor index is less likely to react to United States-based financial news.

Be sure to remember that what happened in the past will not necessarily repeat in the future. Historical index data should be used carefully.

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