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Home Buyer's Recession Survival Guide - The LIBOR-COFI-COSI Alphabet Soup

Updated on May 26, 2009

There are some strange acronyms wandering around the mortgage world, but if you are currently the holder of an Adjustable Rate Mortgage (another acronym: ARM) you might want to know a little about LIBOR, COFI and COSI as they can have a serious impact on your financial health.

If you don't believe that, just go find any former ARM holder who has been foreclosed on since "it was a really long document with lots of tiny type and I didn't bother reading it before I signed it."

LIBOR stands for the London InterBank Offered Rate. It is the rate that one huge bank charges another huge bank for borrowing its money, and it closely adheres to global economic conditions. If your ARM is indexed to the LIBOR then your rate is subject to an almost completely different set of factors than if it was indexed to the U.S. Treasury Bill.

The LIBOR has a bit of a tendency to jump around, as it not only has to take into consideration the economic situation in the United States, but all over the world. You might remember reading the news a couple of months ago when the LIBOR had reached such an outrageous level that banks essentially stopped borrowing from each other at all, and that was the trigger that crashed the entire world economy and brought a vast amount of lending to a virtual standstill. The LIBOR has recovered significantly since that time, but it is still a figure that is worth keeping an eye on as it holds the financial welfare of the world within its arcane algorithms. If you are looking at a LIBOR indexed ARM, you might want to ask your mortgage professional about indexing to COFI or COSI which are a bit more stable indexes.

The COFI and COSI will still go up and down like the LIBOR but at a delay of several months. While you can really be surprised by the LIBOR spiking or plummeting without notice, if you are indexed to COFI or COSI you can keep an eye on the LIBOR and predict months in advance what's going to happen to your rate. One of the advantages of LIBOR is that the ARMs indexed to it tend to have the healthiest caps to keep borrowers from getting in too far over their heads.

Some of the other indices that ARMs are linked to include:

12-month Treasury Average Index (MTA)
Bank Bill Swap Rate (BBSW)
Constant Maturity Treasury (CMT)
National Average Contract Mortgage Rate

Each has its pros and cons, and really only your Mortgage professional can help you sort it all out, but it definitely is worth asking about. Picking the index that is right for you can save you thousands of dollars over the term of the loan. Also keep in mind that not all borrowers will qualify for all loans, and that some types of mortgages are so esoteric and unusual that some mortgage professionals not only won't offer them, but may not even be aware of where to go to get one. As in everything else in home ownership, it is well worth your while to do your homework!

Read The Entire Survival Guide

Home Buyer's Recession Survival Guide - The Subprime Meltdown
Home Buyer's Recession Survival Guide - The Advantage Of Renting Over Buying
Home Buyer's Recession Survival Guide - Why Rent? Why Not?
Home Buyer's Recession Survival Guide - Five Common Mistakes House Buyers Make
Home Buyer's Recession Survival Guide - Get Your Home Sold Quickly & At Your Asking Price
Home Buyer's Recession Survival Guide - Improve Your Home's Value And Sell It For More!
Home Buyer's Recession Survival Guide - Learn The Value Of Curb Appeal
Home Buyer's Recession Survival Guide - Home Staging: Valid Selling Technique Or Fraud?
Home Buyer's Recession Survival Guide - Before You Go House Shopping
Home Buyer's Recession Survival Guide - The Home Condition Checklist
Home Buyer's Recession Survival Guide - Getting A Mortgage From Different Types Of Lenders
Home Buyer's Recession Survival Guide - What To Do After You're Turned Down
Home Buyer's Recession Survival Guide - New Initiatives To Help Get You Approved
Home Buyer's Recession Survival Guide - Isn't HUD An Old Paul Newman Movie?
Home Buyer's Recession Survival Guide - Jumbo Isn't As Huge As He Once Was
Home Buyer's Recession Survival Guide - FHA Q&A
Home Buyer's Recession Survival Guide - The FHA's Credit Requirements Vs. The Bank's
Home Buyer's Recession Survival Guide - Your Credit Score And Your Mortgage
Home Buyer's Recession Survival Guide - Credit Score Confusion
Home Buyer's Recession Survival Guide - Keeping That Credit Score Nice & High
Home Buyer's Recession Survival Guide - Minimize The Interest Payable
Home Buyer's Recession Survival Guide - What Is PMI & Why Do I Care?
Home Buyer's Recession Survival Guide - The LIBOR-COFI-COSI Alphabet Soup
Home Buyer's Recession Survival Guide - REO: Get Rich Quick Or Just Waste Time?
Home Buyer's Recession Survival Guide - Obtaining Flipping Money
Home Buyer's Recession Survival Guide - Consider The Additional Costs
Home Buyer's Recession Survival Guide - What Is Escrow?
Home Buyer's Recession Survival Guide - Tips To Avoid Foreclosure
Home Buyer's Recession Survival Guide - The Changing Value Of Your Mortgage Dollar
Home Buyer's Recession Survival Guide - How To Ride The Interest Rate Spikes
Home Buyer's Recession Survival Guide - Can't Get A Mortgage? What A PITI!
Home Buyer's Recession Survival Guide - Calculating Your Closing Costs
Home Buyer's Recession Survival Guide - Mortgage Broker or Mortgage Banker?
Home Buyer's Recession Survival Guide - The Magic Of A Down Payment
Home Buyer's Recession Survival Guide - A Refinance Checklist
Home Buyer's Recession Survival Guide - Refinancing With Bad Credit
Home Buyer's Recession Survival Guide - The Self-Employed Mortgage Maze
Home Buyer's Recession Survival Guide - VA Loans
Home Buyer's Recession Survival Guide - Offset & Reverse Mortgages
Home Buyer's Recession Survival Guide - The Reasons To Not Buy An Offshore Retirement House
Home Buyer's Recession Survival Guide - How To Pay Less Than $500 A Month
Home Buyer's Recession Survival Guide - Five Easy And Cheap Tips To Save Big $ On Energy

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