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Libor loans are loans based on either a fixed or adjustable rate tied to the libor index. LIBOR is an abbreviation for "London Interbank Offered Rate," and is the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. Choosing a LIBOR index based mortgage loan and paying "interest only" allows the homeowner a number of benefits over fixed rates.

How does the LIBOR Index compare to other indexes?
Over the past ten years, the LIBOR index has followed a pattern similar to that of the U.S. T-bill. LIBOR Index rate changes have historically been in smaller increments, while the Prime Rate has tended to move more sporadically and in larger increments.