Spike in LIBOR rates may pressure ARM mortgage holders.

I know everyone (including me) is rather distracted by the events going on in the financial market mayhem over the past two weeks, but many mortgage holders of ARM’s tied to the LIBOR Index should be re-evaluating their long term mortgage strategy.    Because LIBOR has been very low, many were complacent to make serious consideration of refinancing into a fixed rate.  I read many comments about LIBOR Index being very favorable, and to an extent is has been true, until…….

Bloomberg’s report

The overnight Libor rate in US dollars ratcheted up 3.3 percentage points to 6.44 percent, the largest increase in 7 yrs.

This could change the tone of all the ARM mortgage holders, whose mortgage index is tied to the LIBOR, who were hoping for little payment change when their adjustment period arrives.

About 6 million U.S. mortgages, including almost all subprime home loans and 41 percent of prime ARMs, are linked to the London Interbank Offered Rate, or Libor, according to First American CoreLogic in Santa Ana, California.

Further down the article, Seattle’s Bill Fleckenstein remarks:

“If the Libor market seizes up and stays that way, it’s going to complicate everything,” said Bill Fleckenstein, president of Fleckenstein Capital in Seattle. “What you are seeing is the unwinding of the financial system as we know it.”