Q&A with June Fish of Ashworth Mortgage Corp.

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June Fish, Ashworth Mortgage Corp.

What are indexes? My mortgage broker keeps discussing quotes in terms of this index or that index?

Indexes are the base numbers onto which the lender add its basis point spread. Some of the more familiar indexes used in commercial real estate lending are LIBOR, PRIME, FHLBB, and U.S. TREASURY.

Very often the LIBOR and PRIME indexes are used when discussing a floating rate transaction. LIBOR stands for the London Interbank Offered Rate and is best described as the most creditworthy international banks dealing in Eurodollars charge one another to borrow from one another on large transactions. Libor indexes that are used most for loan quotes are the 30 and 90 day Libor. Additionally and in the same manner PRIME is used as a benchmark index onto which a spread can be added for a floating rate. To view these rates visit: www.bloomberg.com/markets/rates/keyrates.html

Fixed rate bank loans are most often calculated over the FHLBB. FHLBB stands for the Federal Home Loan Bank/Boston. Boston is one of 12 of the federal home loan bank regions. Very often regional banks that are making fixed rate loans at this time are using the FHLBB as the index onto which they add their spread of basis points. To view the FHLBB rates visit: http://www.fhlbboston.com/rates/advances/02_01_01_classic_adv_rate.jsp

The Treasury coupon is most often used as the index for fixed rate life insurance company lenders and the like. They typically lend over a longer term than other commercial real estate lenders and they traditionally have used the Treasury coupon for the index over which they add basis points to get their spread. While some loans may be very short in term, and some may be long and self-amortizing the 'typical' year length for these loans is five, seven and ten years and the appropriate five and ten year treasuries are used, with seven year transactions using an interpolated rate by weighting between the 5 and 10 year.

To see the Treasury coupon rates visti: www.bloomberg.com/markets/rates/index.html

Send your questions to info@ashworthmortgage.com.

June Fish is a commercial real estate broker with Ashworth Mortgage Corp. in Newton, Mass.