Transition from LIBOR

Transition From LIBOR

The London Inter-bank Offered Rate (LIBOR) is an index used in determining the interest rates on many loans including adjustable-rate mortgages. LIBOR has been a long-established global benchmark for interest rates, but its credibility has declined over the past decade. As such, Regulators have recently deemed LIBOR as unsuitable for industry use after June 30, 2023.

As a result, the financial industry will stop using LIBOR as a benchmark for interest rates and will be transitioning away from this index to new alternative rates.

Here’s what this means for you:

All loans and financial products that are based on LIBOR are affected. You may be affected if you have an adjustable rate mortgage (ARM) that is based on the LIBOR index.  A new index will be assigned to your loan at your first-rate adjustment after June 2023. Until then, your interest rate will continue to be based on the LIBOR index.

This transition is an ongoing process with plans and details across the industry still needing to be finalized. As your credit union, we will be here to provide you with up to date information and help make the transition as seamless as possible.

Understand the LIBOR transition


Why is it important?

Over 400 trillion dollars are tied to the LIBOR index worldwide. This total comes in the form of mortgages, student loans, corporate loans, securities, and derivatives. The discontinuing of this index will have an effect on the entire financial industry, and can possibly have an impact on your adjustable rate mortgage.


Why does LIBOR need to replaced?

LIBOR had been a relatively trustworthy benchmark in determining the interest rates of many loan agreements. However, over the years its volatility has led to regulators suggesting a transition away from LIBOR.


What is the LIBOR replacement timeline?

Two important dates:

  • December 31, 2021 is the last date for international LOBORs and the 1 – Week and 2 – Month USD LIBOR tenors.
  • June 30, 2023 is the last date for publication for the remaining USD LIBORs.

Regulators from the United States have given guidance to stop releasing new USD LIBOR by December 21, 2021


What index will replace LIBOR?

Replacement index options are being considered.  It is expected that the SOFR (Secured Overnight Financing Rate) index will replace LIBOR for most ARM loans. Before a replacement index is put in place, you will be notified with the details of any changes affecting your ARM.

For more information on the discontinuation of LIBOR, see the ARRC website: https://www.newyorkfed.org/arrc


Should I get a new mortgage loan?

You don’t have to get a new mortgage because of this change, however it may be a good time to determine if your mortgage still meets your financial needs.  If your financial goals have changed, you’re looking for a stable payment amount or you can benefit from a lower interest rate, you may consider getting a new mortgage.

Talk to a mortgage officer today.