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Free4Life11
06-24-2009, 09:28 PM
Hi I need some help regarding an interest rate. I have a variable rate student loan and the rate adjusts each calendar quarter. They sent me a notice saying that the rate will be 4.875% effective the quarter beginning July 1. I am questioning this rate, but I don't want to call before double checking this.

Here is how my rate is calculated, per the promissory note:

Calculation of Rate Following Deferral Period: On each Change Date during following your Deferral Period, we will calculate your new rate of Interest by adding two point nine percentage points (2.9%) to the Current Index. We will round the result of this addition to the nearest one-eighth of one percentage point (0.125%). This rounded percentage will be the new rate of Interest until the next Change Date.

Change Dates: The date on which the rate of Interest may change each calendar quarter is am“Change Date.” For the first Advance, the Change Date is the date of the first Advance. Under this Note, the Change Date will occur on the first day of each calendar quarter based on a change in the Current Index.

Current Index: From the date of this Note, the rate of Interest will be based on an Index. The “Index” is the three (3)-month U.S. dollar-denominated deposits of the London Interbank Offering Rates (“LIBOR”), as published in The Wall Street Journal newspaper. The most recent Index figure available as of the first (1st) day of the month immediately preceding the quarter in which the Change Date occurs is called the “Current Index.” If the first (1st) day of the month falls on a Saturday, Sunday, or bank holiday, the Index on the following business day will serve as the most recent Index figure.

I went to the WSJ website (http://online.wsj.com/mdc/public/page/2_3020-moneyrate.html) and the 3-month LIBOR rate on June 1, 2009 was 0.65.

So I believe my rate should actually be 3.625, which is 2.9 + .65 = 3.55, rounded up to 3.625%

Is this correct or am I missing something?

Cheshire Figment
06-24-2009, 10:42 PM
If the numbers are correct, then your calculations appear to be correct.