 
I recently had a call from a prior article written on Index Based ARM’s (adjustable rate mortgages). The client of which we speak was making a substantial purchase and needed to mortgage 5 million which represented approximately 70% of the total value of his new dream home. He was intrigued by the idea of the index mortgages so we set to work at structuring a loan that would suit his purposes. To bring anyone up to speed who may have missed the column, there are a variety of commonly used interest rate indices, each of which is an independent, published economic indicator (eg. LIBOR, COFI, MTA & CMT). Lenders use these indices to establish the interest rate on adjustable rate mortgages, and ARM rates follow the movement of these indices. The lender adds a specified number of percentage points, called a margin, to the index in order to establish the actual rate of interest. Typically, these rates are significantly less than those of fixed rate mortgages. The LIBOR is the most widely used benchmark or reference rate for short term interest rates. It is compiled by the BBA (British Bankers Association) and released to the market at about 11:00 each day. LIBOR stands for the London Interbank Offered Rate and is the rate of interest at which banks borrow funds from other banks, in marketable size, in the London interbank market. At the time I am writing this article the one month Libor posted at 1.31%. But what is the margin? I recently attended a National Banking Convention where I was introduced to a mortgage lender who is able to offer a diverse array of products designed to accommodate the financing needs of the high net worth borrower. Perfect, so what is their margin? Only 1.875%. Added to the 1 month LIBOR index, the rate to my customer is 3.185% on a 5 million dollar mortgage. It gets better; there is also an interest only option available. Flexible payment plans are wonderful for individuals who are sole proprietors, such as our client. In addition, this program is available for second homes with no “add-on” or “penalty”. The lender also offers a Foreign National Program and will finance investment properties up to 4 million. Exceptions for higher loan amounts and loan to value requirements can be made on a case by case basis depending upon the financial strength of the client and the value of the property being financed. For more information on the LIBOR or any of the above loan types I can be reached at (516) 935-5600 ext.13. Back |
