• The phrase “reference rate” refers to the base rate against which other interest rates are pegged.

  • The overall reference rate may be LIBOR to be used as reference in interest rate swaps or interest rate agreements.
  • LIBOR is the London Interbank Lending Rate, which is used as the base rate for many other interest rates.
  • Reference rates are used in an adjustable rate mortgage (ARM), in which the borrower’s interest rate is the base rate - usually the prime rate - added to an additional set amount called the spread.