Interest rate type
LIBOR linked rates
LIBOR stands for the ‘London inter-bank offered rate’, an internal rate set by the British Bankers’ Association. It is an advisory figure helping individual banks, building societies and other lenders to set charges on loans to individuals (through all forms of loans, not just mortgages). At any one time the LIBOR rate will have figures for different periods – one week, three months, six months, a year and so on. Most LIBOR tracker mortgages are linked to the three-month figure.
You need not worry about the intricate details of LIBOR, but make sure you have some understanding of it if you are considering getting a tracker linked to it. Incidentally, a look at the time-span figures can give an indication of what experts are thinking. If, for example, the LIBOR one-month rate is 3.50 per cent, the six-month rate is 3.25 per cent and the 12-month rate hits 3.75 per cent, it suggests the banks believe that interest rates might go down and then up again.