<p>Libor is defined as the rate at which an individual Contributor Panel bank could borrow funds. Funds in this context refer to unsecured inter-bank cash or cash raised through primary issuance of inter-bank certificates of deposit.</p>
<p>That's why Libor rates are sometimes called cash rates.</p>
<p>If a mortgage is adjustable, the contract should also list which index is used to calculate your interest rate (plus a rate add).</p>
<p>If you are asking what happens to mortgages that reference Libor, the exact details will depend on the contract terms, federal laws and regulations. Either way, your mortgage will need to switch to a replacement index, and the Secured Overnight Financing Rate (SOFR)-based indexes are what regulators recommend. However, regulators also indicated that market participants are free to choose alternatives. Some potential alternative benchmarks are:</p>
<ul>
<li><a href="https://www.theice.com/iba/bank-yield-index" rel="nofollow noreferrer">ICE's Bank Yield Index</a></li>
<li><a href="https://www.prnewswire.com/news-releases/bloomberg-confirms-its-bsby-short-term-credit-sensitive-index-adheres-to-iosco-principles-301263169.html" rel="nofollow noreferrer">Bloomberg's BSBY Index</a></li>
</ul>
<p>For example, <a href="https://assets.bbhub.io/professional/sites/10/BSBY-Methodology-Document-March-30-2021.pdf" rel="nofollow noreferrer">BSBY</a> is dynamic, incorporates a credit-sensitive element, and it reflects the marginal funding cost for banks across five different tenors (overnight, one month, three months, six months, and 12 months).</p>
<p>Generally, <a href="https://data.bloomberglp.com/professional/sites/10/IBOR-Fallback-Rate-Adjustments-Rule-Book.pdf" rel="nofollow noreferrer">ISDA fallbacks</a> apply since 31 December 2021 for GBP, JPY, CHF and Euro-LIBOR and from 30 June 2023 for USD LIBOR. Even if there were some <a href="https://www.theice.com/iba/libor" rel="nofollow noreferrer">synthetic</a> or <a href="https://www.bloomberg.com/news/articles/2019-09-09/-zombie-libor-risks-are-being-underappreciated-jpmorgan-says" rel="nofollow noreferrer">&quot;zombie&quot;</a> Libor after it officially ceases to exist, it is expected that liquidity will drop significantly. Note that the <a href="https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/USD-LIBOR-transition-progress-report-mar-21.pdf" rel="nofollow noreferrer">FED</a> have issued supervisory guidance encouraging banks to “cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021”.</p>
<p>For short, once Libor is gone, your major reference are RFR rates (SOFR in the US).</p>

CC BY-SA 4.0
2022-12-16T17:29:07.553Z
2022-12-17T01:39:26.333Z
2022-12-17T01:39:26.333Z
AKdemy
<p>I'm reading about the upcoming LIBOR transition and a number of things refer to the &quot;one-, three-, six-, or 12-month LIBOR in cash transactions&quot;.  Would that include an adjustable rate mortgage loan that uses the LIBOR?</p>

<mortgage>
Are promissory notes or mortgages considered cash transactions?
user348514
# Are promissory notes or mortgages considered cash transactions?

(Asked by: username_0 on 2022-12-16)

I'm reading about the upcoming LIBOR transition and a number of things refer to the "one-, three-, six-, or 12-month LIBOR in cash transactions". Would that include an adjustable rate mortgage loan that uses the LIBOR?

**Tags:** mortgage

---

## 1 answers

### Answer by username_1 on 2022-12-16. Score: 1 | Accepted answer

Libor is defined as the rate at which an individual Contributor Panel bank could borrow funds. Funds in this context refer to unsecured inter-bank cash or cash raised through primary issuance of inter-bank certificates of deposit.

That's why Libor rates are sometimes called cash rates.

If a mortgage is adjustable, the contract should also list which index is used to calculate your interest rate (plus a rate add).

If you are asking what happens to mortgages that reference Libor, the exact details will depend on the contract terms, federal laws and regulations. Either way, your mortgage will need to switch to a replacement index, and the Secured Overnight Financing Rate (SOFR)-based indexes are what regulators recommend. However, regulators also indicated that market participants are free to choose alternatives. Some potential alternative benchmarks are:

* [ICE's Bank Yield Index](https://www.theice.com/iba/bank-yield-index)
* [Bloomberg's BSBY Index](https://www.prnewswire.com/news-releases/bloomberg-confirms-its-bsby-short-term-credit-sensitive-index-adheres-to-iosco-principles-301263169.html)

For example, [BSBY](https://assets.bbhub.io/professional/sites/10/BSBY-Methodology-Document-March-30-2021.pdf) is dynamic, incorporates a credit-sensitive element, and it reflects the marginal funding cost for banks across five different tenors (overnight, one month, three months, six months, and 12 months).

Generally, [ISDA fallbacks](https://data.bloomberglp.com/professional/sites/10/IBOR-Fallback-Rate-Adjustments-Rule-Book.pdf) apply since 31 December 2021 for GBP, JPY, CHF and Euro-LIBOR and from 30 June 2023 for USD LIBOR. Even if there were some [synthetic](https://www.theice.com/iba/libor) or ["zombie"](https://www.bloomberg.com/news/articles/2019-09-09/-zombie-libor-risks-are-being-underappreciated-jpmorgan-says) Libor after it officially ceases to exist, it is expected that liquidity will drop significantly. Note that the [FED](https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/USD-LIBOR-transition-progress-report-mar-21.pdf) have issued supervisory guidance encouraging banks to “cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021”.

For short, once Libor is gone, your major reference are RFR rates (SOFR in the US).


---

