The Bank of America Loan Modification Program was introduced in August 2020 as part of the Home Affordable Modification Program (HAMP). The goal of the HAMP initiative was to make home loan modification easier for homeowners.
This is done by changing the way mortgage companies base their interest rates and monthly mortgage payment amounts.
To keep you fully informed on what is happening in this loan modification program, we have compiled an explanation of Bank of America’s LIBOR and ARM terms and their effects on your loan mod.
Table of Contents
What is LIBOR?
LIBOR stands for the London Interbank Offer Rate. It is used to calculate the interest rates applicable to various currencies. Traditionally, banks in London trade with one another on this market.
The Libor rate is often used as the basis for mortgage loans in different countries across the globe. LIRR is a measure of interest rates that is agreed upon internationally.
Adjustable-rate mortgages will feature a variable-rate depending on the changes in LIRR; however, this is less likely to change.
Different Types of mortgage rate which is similar to LIBOR
Mortgages are a mortgage product that can be secured by your home. Many people will often use a mortgage as part of their large purchases, like a house or a car.
There are many different types of mortgages including adjustable rate mortgages, fixed rate mortgages and reverse mortgages. To get the best mortgage available, you will need to understand all of the terms that are involved.
Here is a quick look at several of the terms that are involved in mortgages and how they affect your mortgage.
Fixed Rate Mortgages
A fixed rate mortgage refers to the type of rate that will stay the same for the entire life of the loan.
Your initial mortgage rate may change over time based on economic conditions. This is also known as mortgage interest rates.
The fixed rate mortgage is one of the safest forms of mortgages available because it cannot be affected much by changing interest rates. If the interest rates go up, the amount you pay on your monthly mortgage payments will go up also.
Adjustable Rate Mortgages
This is a type of mortgage where the interest rate is linked to an index which varies. The rate may go up and down with the changes in the index. An adjustable rate mortgage is great if you plan to stay in the home for a long period of time, but it is important to understand that if the rates go up, the amount you pay on your monthly mortgage payment will go up as well.
Adjustable rate mortgages are a good choice for those who want to lock in the interest rate on the entire term, but they are not so great for individuals who will need to sell the home within a short period of time.
This type of mortgage is only offered to banks, credit unions, mortgage giants, or registered money lenders. The money market offers a fixed rate for a certain period of time. This is another type of mortgage where the interest rate is tied directly to the money market.
This money market mortgage is a great option if you need to borrow a large amount of money, but the interest rate is often tied closely to the money market.
These are just some of the various terms that are used when you talk about mortgage interest rates. There are many more terms out there that will allow you to compare them to help you find the best deal on your home. Your local hometown lender can offer many different mortgage rates as well. However, you should shop around first to get the best possible rates. This way you can ensure that you get the best deal and know exactly what you are getting into.
When your mortgage lender adjusts the interest rate of one of their mortgage loans, they are adjusting the rate according to the rates that are then offered to the market. Traditionally, your mortgage lender may have set the rate at whatever the market rate was at the time. If the market rate drops, then the Libor rate goes down. So, if your Libor rate were to drop, would it make sense for you to refinance your mortgage?
The Fact of Libor Rates
In fact, the answer to that is no. Even if your Libor interest rates go down, it could affect your mortgage contract in such a way that you could end up losing money. One of the primary goals of the HAMP initiative was to prevent mortgage companies from making adjustments to interest rates that could affect the terms of the loan.
As a result, any reduction of the rate could affect the amount of your monthly payment and the amount of principal you owe.
However, the interest rates are tied to Libor, which is actually an abbreviation for London Interbank Offer Rate. Libor is used to determine the rate of interest your mortgage company will offer to you.
The Libor rate is often updated twice a day, so if it drops by one percent, this could definitely have an effect on your monthly payments. In addition, any major financial news release can have an impact on the Libor rate.
If there is a big announcement by a bank or other lender that has a significant effect on the global economy, the rate could be adjusted upward.
Your mortgage company likely has a record of where the Libor rate was when they gave you your loan or line of credit.
If your mortgage was based on the Libor rate, then you should contact your lender and see what the current rates are. If you already have a mortgage, you should check with your lender as well to see if they are using a Libor rate and how they came to that rate.
Before deciding to take out a mortgage, it is essential that consumers understand the different types of mortgage and which type is most suited to their needs. Fixed rate mortgage offers a low interest rate over a certain period of time. An adjustable rate mortgage offers an interest rate linked to an economic index.
Whichever form of mortgage is offered to a client, it is crucial that they do some research and understand how the mortgage works before signing on the dotted line.