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Adjustable Rate Mortgages

12-MTA Loans
COSI Loans
COFI Loans
Interest Only Indexes

Adjustable rate mortgage indexes are used to calculate the new interest rate on ARMs. The index is a rate set by market forces and published by a neutral third party. There are a few  acronyms to denote various ARM indexes, such as 12-MTA, COFI,  LIBOR, MAT and  CMT. Each index responds at its own peculiar pace to the economy’s ups and downs. Indexes are divided into two broad categories: those based upon rate averages and those based upon spot rates.  This is not written in stone and there is a lot of overlapping.

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Most ARM rates are tied to the performance of one of four major indexes:

One Year U.S. Treasury Bill or 12-MTA
1. The most common index for ARM adjustments is the one-year U.S. Treasury bill, or 12-MTA. The one-year bill has a yield very near that offered by the 30-year Treasury bond, which is used to set rates on 30-year fixed mortgages.

2. The 11th District Cost of Funds Index (COFI)
COFI-based loans are indexed to the cost of funds for the 11th district of the Federal Home Loan Bank system. The 11th district consists of banks based in the states of Arizona, California and Nevada, in the United States of America. The cost of funds index is a weighted average of the interest that member banks pay on money they borrow, mostly on customers’ checking and savings accounts.

3. The London Interbank Offered Rate (LIBOR)
The rate most international banks are charging each other on large loans. LIBOR is the most popular index based on spot rates. The LIBOR tracks the rates at which London banks pay to borrow one another’s reserves. It fluctuates more rapidly than the COFI, but less then the 12-MTA.

4. Cost of Savings Index (COSI)
The COSI index is based upon the interest rates on funds that are currently deposited in the Golden West Financial Corporation, otherwise know as World Savings Bank.  The COSI index is updated monthly and is reported on the 15th of every month.

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