Which index is used to establish a benchmark for adjustable-rate mortgages?

The LIBOR rate serves as a widely used benchmark for adjustable-rate mortgages (ARMs). LIBOR, or the London Interbank Offered Rate, reflects the interest rates at which banks lend to one another in the short-term money markets. It is a crucial reference point because many financial instruments, including ARMs, are tied to short-term interest rates. Adjustments to the interest rates on ARMs are often made based on changes to the LIBOR rate, which can directly influence borrowers' monthly payments.

While the other options may have roles in different financial contexts, they do not serve as the primary benchmark for ARMs. The unemployment rate typically indicates economic health rather than interest rates, the prime rate is more often related to loans and credit products rather than specifically mortgages, and the consumer price index measures inflation rather than interest rates. Thus, LIBOR is specifically relevant for determining the interest costs associated with adjustable-rate mortgages.