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The LIBOR index for adjustable-rate loans is being discontinued: here’s what to watch for

By June 2023, the LIBOR indexes that historically have been used to set interest rates for many types of adjustable-rate loans will be phased out. For consumers with adjustable-rate mortgages, reverse mortgages, student loans, HELOCs, or credit cards, this may mean a change to the way your lenders and loan servicers calculate your interest rate.

As financial institutions make the transition to a new interest rate index, we’re setting clear rules to ensure consumers are protected.

If you have an adjustable-rate loan, credit card, or another financial product, here’s what to watch for by June 2023.

How do I know if my loans use LIBOR to set my interest rates?

To check whether your loan or line of credit uses the LIBOR index, look at your loan contract. Your contract tells you whether your interest rate is fixed or adjustable, and if it’s adjustable, the contract should also list which index is used to calculate your interest rate.

Learn more about how LIBOR affects your interest rate

Does my lender or servicer have to stop using LIBOR as my index?

Yes. The United Kingdom financial regulator that oversees LIBOR has announced that they’ll discontinue the index by June 2023. Lenders and servicers must stop using LIBOR by this date and most are expected to switch to using another comparable or substantially similar index by this date.

Since this change was announced, a group of private sector, public interest, and federal agencies have worked together to identify and review suitable replacements and have recommended the Secured Overnight Financing Rate (SOFR)-based indexes.

Is my interest rate going to change when my loan switches to a new index?

The change to a new index may or may not result in a change in your interest rate. Lenders and servicers are generally required to select a replacement index that is comparable or substantially similar, so your interest rate under the new index should also be comparable or substantially similar.

For most types of loans, your lender or servicer has to tell you before your interest rate changes. Keep in mind, though, that you have an adjustable-rate loan so your interest rate may increase or decrease over time, depending on market changes and the movements of the index.

If you see changes to your interest rate that concern or confuse you, call your lender or servicer right away. If your lender or servicer doesn’t address the issue, submit a complaint with us.

Requirements for different types of adjustable-rate loans

When your lender or servicer selects a new index for your loan, they have to follow requirements in your contract as well as federal laws and regulations. We’ve issued a new rule, which goes into effect in April 2022, to provide requirements for how they choose a new index and how they’ll notify you of changes.

Here are the requirements based on the type of loan.

Adjustable-rate mortgage

What are the lender’s requirements for choosing a new index?

For adjustable-rate mortgages where the amount borrowed is fixed, your lender generally must pick a replacement index that is comparable to LIBOR or give you a new set of loan disclosures and comply with other requirements. SOFR-based indexes are comparable to LIBOR. Based on your loan contract or state law, your lender may also need to get your permission to switch to a different index that is not comparable to LIBOR.

What information will I receive from my lender?

Federal law generally doesn’t require mortgage servicers to notify you of the change in the index unless the lender picks a replacement index that is not comparable to LIBOR, but your servicer might send you voluntary notices explaining the LIBOR transition. Your lender or servicer generally has to notify you in advance of any changes to your interest rate that will result in a change to your monthly payment, so take a close look at these notices when you get them. If you have any concerns or questions, contact your servicer right away.

For most types of adjustable-rate mortgages, if your loan is still in the initial fixed-rate period, your servicer has to give you this information approximately seven to eight months before your interest rate is scheduled to change.

If your loan is no longer in the fixed-rate period, your lender generally has to notify you of the coming changes approximately two to four months in advance.

Credit cards

What are the lender’s requirements for choosing a new index?

Lenders generally must pick a replacement index that’s shown to be substantially similar to LIBOR in how the rates have fluctuated over time. The SOFR-based indexes and the PRIME index meet this standard. If your lender selects a different index, they generally will have had to analyze the index to confirm that it meets this standard. Also, your interest rate based on the new index and margin must be substantially similar.

What information will I receive from my lender?

The credit card company has to send you a written notice of any changes to your index at least 45 days before the changes take place. These notices also may contain information about changes to the margin and Annual Percentage Rates on your account.

HELOCs and reverse mortgages

What are the lender’s requirements for choosing a new index?

Lenders generally must pick a replacement index that’s shown to be substantially similar to LIBOR in how the rates have fluctuated over time. The SOFR-based indexes and the PRIME index meet this standard. If your lender selects a different index, they generally will have had to analyze the index to confirm that it meets this standard. Also, your interest rate based on the new index and margin must be substantially similar.

What information will I receive from my lender?

If you have a HELOC or reverse mortgage where the amount borrowed is revolving, your lender has to send you a written notice at least 15 days before any changes to your index take place. These notices also may contain information about changes to the margin and Annual Percentage Rates on your account.

Student loans

What are the lender’s requirements for choosing a new index?

Student loans obtained through the federal government (Department of Education) are not impacted by this change. The only student loans affected by this change are private education loans charging adjustable rates that are based on LIBOR. In general, your student loan lender must pick a replacement index that is comparable to LIBOR or give you a new set of loan disclosures. SOFR-based indexes are comparable to LIBOR. Based on your loan contract or state law, your lender may also need to get your permission to switch to a different index that is not comparable to LIBOR.

What information will I receive from my lender?

Federal law doesn’t require student loan lenders to notify you of the change in the index, unless the lender picks a replacement index that is not comparable to LIBOR. However, your contract with the lender might require a notice, and some lenders may also voluntarily provide this information to you.

When you receive any written notice from your lenders or servicers, read them carefully to make sure you understand the changes to your loan.

If you see changes that concern or confuse you, call your lender or servicer right away, and if your lender or servicer doesn’t address the issue, submit a complaint with us.

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