Why Some Homeowners Are Cheering the LIBOR

One reader contacted me last week with her good news. She said, "Have a look at the letter from my bank. It looks like good news to me!"

I later found out that this reader originated her adjustable rate loan five years ago on a new California home purchase. She was aware at the time that the interest rate would adjust in 2009. "Back then, 5 years seemed like a long time. I can't believe it is now 2009."

I quote directly from her bank's letter with her permission:

This notice is to inform you of upcoming changes to your adjustable rate mortgage loan interest rate and payment. The rate change date for your loan is July 01, 2009, with a new payment effective date of August 01, 2009. The next adjustment will occur in 6 months.

The installment due on your loan will be adjusted from $1,329.83 to $886.55.

The index value used to determine the interest rate has changed from your origination rate to 1.24000%. The current index value was published on 06-01-09. This is the selected index value for the index known as the "6 MONTH LIBOR 1ST BUSINESS DAY (WALL ST. JOURNAL)." Effective with your August 01, 2009 payment, your interest rate will be adjusted from 5.25000% to 3.5000%.

If you have any questions regarding this notice please contact our Customer Service Department.

She further commented, "Even though the market value appears to have dropped for my home in the last five years, this monthly adjustment to my budget is quite welcome. I may use some of that $450/month toward a new car payment or toward paying down additional principal on that mortgage. This month, I am just going shopping."

LIBOR index rates continue their historical lows. This week's 6 month LIBOR is down even further at 1.16% and the 1 month LIBOR at 0.32%. It appears likely that our cheerful reader may have additional monthly funds available at her next adjustment six months from now.

When ask what she would do with even a further decrease in her monthly housing costs in late 2009 she said, "It could be a very Merry Christmas."

If anecdotal news and letters like this become at all wide-spread, it could mean further gains for retail summer sales, continued foreclosure declines, and may give the beleaguered auto industry something to really cheer about.