what is libor

The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. It is an interest rate average calculated from estimates submitted by the leading banks in London, with each bank estimating what it would be charged were it to borrow from other banks. LIBOR served as a globally accepted key benchmark interest rate that indicated borrowing costs between banks. However, LIBOR was phased out at the end of 2021, and market participants are being encouraged to transition to risk-free interest rates such as SOFR and SARON. As of late 2022, parts of it have been discontinued, and the rest is scheduled to end in the summer of 2023. The last rates were published on June 30, 2023, before 12:00 pm UK time. The 1 month, 3 month, 6 month, and 12 month Secured Overnight Financing Rate (SOFR) is its replacement. LIBOR rates are used to determine the interest rates in financial contracts, including consumer loans, such as adjustable-rate mortgages, reverse mortgages, home equity lines of credit (HELOCs), student loans, and credit cards.