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12 MTA Loans

12-MTA means 12 Month Treasury Average. This is an index used on adjustable rate mortgages (ARM). An ARM is a type of mortgage where the interest rate floats on an index. An index, in this context, is an external financial indicator.

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Before you would want to explore the type of index used on an ARM. You would need to decide if you want an ARM or a fixed rate mortgage. There are good reasons for each type of loan and if you aren’t familiar with the pro’s and con’s of each type, stop reading right here and get some more background information.

I’ll assume that if you’re still reading you know that an ARM is the right sort of loan for you. One decision you’ll have to make about your ARM is what type of index will be used to calculate the rate you’ll pay. The rate is always the index percentage plus a margin. Generally, the more volatile an index is the lower the margin will be.

The 12-MTA or 12 Month Treasury Average is an average of averages. It is the 12 month average of the CMT which is an average of the monthly or weekly yield on US U.S. Treasury securities. U.S. Treasury securities are what the United States government sells to pay off its debts. U.S. Treasury securities include Treasury bills, notes, bonds and Treasury inflation-protected securities (TIPS).

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Because the 12-MTA index is an average, it tends to move up and down more slowly than indexes that are based on spot prices. It is always based on the previous year’s CMT. If you keep track of the CMT, you’ll be able to fairly accurately predict what your interest rate will be a few months before it is recalculated.

With a spot index, you can see the general direction and get a pretty clear idea of where your new rate will be heading. But with a spot index, like the LIBOR, your rate is pegged to where the index is on the day its recalculated. If there is either a spike or a sudden drop, your new rate could be very different from what you expected.

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If there is a downturn in the economy, it will be reflected in the CMT but because the 12-MTA lags behind a year, that won’t affect your mortgage rate for several months. If you watch the index, you could know what kind of rate hike you’ll see at the next annual review.


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