MTA Index Refinance - MTA stands for Monthly Treasury Average, and is also know as the MAT or 12 MAT. The MTA or MAT index is a relatively slow moving ARM index based on the 12 month average of the monthly average yields of United States Treasuries, which are securities sold by the US government to finance national spending and are backed by the full faith of the US government.
As an ARM Index, the MTA or 12 MAT index has become increasingly popular in recent years, thanks in large part to the popularity of the Option ARM mortgage for which it serves as one of the most common indexes.
Adjustable Rate Mortgages based on the MTA index are commonly called 1-Month MTA, 3-Month MTA, 12-month MTA, Pay Option ARM, and Pick a Pay Mortgage. While the MTA index itself is more stable than other common ARM indexes such as the CMT index on which it is based, many of the ARM mortgages based on the MTA have rates which adjust each month, even if you dont know it. This presents significant risks to the homeowner who does not understand these mortgages, which can be mitigated by fixing the rate on an MTA ARM by refinancing. Conventional fixed rate mortgages do not have minimum payment options, so many borrowers in MTA-based mortgages do not refinance to convert to a fixed rate because they do not want to make a large monthly payment. However, there are now options for borrowers in MTA index ARM loans to refinance into a fixed rate without sacrificing the minimum payment options. If you are currently in an MTA index-based ARM, and like the low payment caps, you may be eligible to refinance into a fixed rate mortgage (fixed for 3 to 30 years) while still preserving the flexibility of the "minimum payment" deferred interest option for which these loans are best known. These programs are not widely available, and are only offered to qualified borrowers. For more information on Refinancing your MTA Index Adjustable Rate Mortgage to a Fixed Rate Mortgage with similar payment options, call us at 888-275-6788 or request information by email (include your state, the value of your home, and the balance of your mortgages in your message) at info@apartmentloanpro.comMTA Index is usually less volatile than the other indexes used to calculate ARM loans. The banks calculate monthly interest rates by adding the index value to what is called a margin. The margin is a fixed rate that is agreed upon at closing of the loan. A borrowers interest rate will never be lower than the margin.
A MTA index is the underlying index that determines the change in rate for an adjustable rate mortgage (ARM).
Ask your mortgage professional to supply you with a history of the MTA index. This will give you an idea of how stable an index it is.
MTA adjustable home mortgage loans use the 12-Month Treasury Average Index. The 12-MTA is based on average annual yields on U.S. Treasury Securities adjusted to a constant maturity of one year, as made available by the Federal Reserve. Historically, MTA adjustable home mortgage loans have not exhibited sharp interest rate increases such as those that occurred in the late 1980s. Additionally, unlike more volatile indices, the 12-MTA has never increased more than .25% in any month for over a decade.
The majority of MTA indexed mortgages are Option ARMs. Most of these option ARM mortgages use the 1 month MTA index, and their rates adjust monthly, although you wouldn't know it because option arm loans have payment caps which keep the minimum payment fixed even though the underlying rate may change. This monthly adjustment with an annual payment cap is really the riskiest part of being in an option ARM, because you may be deferring substantially more interest than you realize. For borrowers in option ARM mortgages, look into a fixed rate pay option product, or fixed option arm, which provides you with more predictable results over a longer period of time.
Remember that the MTA takes the averages of the last 12 months. So even after the Fed has stopped raising rates the MTA will continue to rise. Conversely, if the Fed is in a lowering mood then the MTA will go down at a slower rate as well. Like all ARM's there are advantages and disadvantages to each index.
MTA Index Adjustable Rate Mortgages, including those with multiple payment, cash flow and positive or negative amortization options, are very common in the super jumbo mortgage category (Note: Super Jumbo mortgage is a name given to mortgages from $650,000 up to several million dollars or more).
Indexes which closely track the MTA index, and vice versa, include the COFI or Cost of Funds Index and the COSI or Cost of Savings Index.
All the above make the MTA index a very stable index for those seeking Option ARMs and are well disciplined with their finances.
Libor Index Mortgage - A Libor Mortgage is short for the London InterBank Offered Rate, the interest rate offered for U.S. dollar deposits by a group of large London banks. There are actually several Libors corresponding to different deposit maturities. Rates are quoted for 1-month, 3-month, 6-month and 12-month deposits.
The LIBOR index is the most popular index that Adjustable Rate Mortgages are tied to. It is the most volatile index as it tends to followed by investors who have investments tied to that index.
LIBOR index- - A Libor Mortgage is short for the London InterBank Offered Rate, the interest rate offered for U.S. dollar deposits by a group of large London banks. There are actually several Libors corresponding to different deposit maturities. Rates are quoted for 1-month, 3-month, 6-month and 12-month deposits.
Your loan's margin, which can be found in your loan documents, is added to the current LIBOR index value to obtain your interest rate. The LIBOR index value changes monthly, as economic conditions change. Therefore, an adjustable rate mortgage (ARM) loan that is tied to a LIBOR index, changes monthly as well.
A Libor mortgage is an adjustable rate mortgage (ARM) on which the interest rate is tied to a specified Libor.
LIBOR index is used as part of calculating the Adjustable rate payment. ARM mortgages are characterized by their index and limitations on charges (caps).
The LIBOR index is used for most subprime ARM loans.
The LIBOR index is a very popular option arm and hybrid or fixed pay option arm index
LIBOR indexes are also found in Jumbo and conforming type loans.
ARM - Index - ARM loans, or Adjustable Rate Mortgages almost all have a feature which can greatly affect how much your monthly mortgage payment or mortgage rate may increase after the introductory fixed rate period of your loan expires, called the Index.
An ARMs Index is really just a guide that allows different lenders to measure and compare changes in interest rates to determine the basic cost of the money they are lending you.
A major increase in the value of an index from the time you purchased the home or last refinanced can cause a significant increase in your mortgage payment, because the ARMs index can be considered an underlying rate which affects, along with the margin, the final note rate which you are charged when your ARM loan begins adjusting at the end of its fixed introductory period.
Lenders and investors in Adjustable Rate Mortgages utilize a variety of indexes for ARM mortgages, including the performance, return or yield of 1 month, 1 year, 3 year, 5 year and even 10 year US Treasury securities (10 year note yield indices are rarely used in adjustable rate ARMs)
Popular ARM Indexes commonly used as benchmarks by lenders include:
>> Prime Rate (Bank Prime Loan)
>> MTA or MAT (12-Month Treasury Average)
>> COFI (11th District Cost of Funds Index)
>> LIBOR (London Inter Bank Offering Rates)
>> T-Bill (Treasury Bill)
>> CMT or TCM (Constant Maturity Treasury)
>> COSI (Cost of Savings Index)
>> CODI (Certificate of Deposit Index)
>> CD (Certificates of Deposit Indices)
Other indexes which may occasionally be used in Adjustable Rate ARM mortgages are highly varied, however homeowners may have an ARM mortgage with an index from the following list (although more rarely than those ARM indexes mentioned above):
>> Cost of Funds component indices:
- Federal Cost of Funds Index
- Semi-annual National Average Cost of Funds Index
- Quarterly Average Cost of Funds
- National Monthly Median Cost of Funds Index
- OR -
- RNY (Fannie Mae or Freddie Mac Required Net Yield)
- Semiannual Weighted Average Cost of Funds Index
- National Average Contract Mortgage Rate
Lenders use many indexes to calculate a borrowers ARM payment. These indexes usually have different values over time. Borrowers should ask a trusted mortgage advisor to determine an ARM loan is right for them. If so, which loan program and index will be the most beneficial to them.
If you're considering an adjustable rate mortgage or have been offered one, make sure that if for whatever reason you can not refinance the loan prior to the adjustment that you can afford the monthly payment after it adjusts. Many homeowners have been lulled into believing that no matter what, they will be able refinance before the loan adjusts and when they realize they can't, they find they may lose their homes because they can't afford the new higher payment.
The way an ARM index works in the calculation of your mortgage interest rate is that whatever Index your mortgage is based on, whether it is Prime, LIBOR, COSI, COFI, MTA, etc..., your index will be added to your rate margin to compute your actual rate. Most adjustable rate mortgages will be fixed at an introductory rate for a specified period of time such as 1, 3, 5, 7, or 10 years, these are very common fixed periods on ARM loans. After that introductory period is over, your rate will then become an adjustable rate mortgage and will adjust, usually either once every month, once every 6 months or once every year (while some may adjust at slightly different intervals). Once your rate starts adjusting, the only component of your rate that will adjust will be the Index. Whatever your margin is, this will remain a constant in the calculation of your interest rate. More often than not, the adjustable rate will increase, however, sometimes the rate will decrease as well. Here is an example of how an adjustable rate mortgage works.
Customer obtains a 3/1 ARM loan. This is a 30 year mortgage that will have a fixed introductory rate for the first 3 years, 36 months, of the loan. Thereafter, every year the rate will adjust once per year. That is what is meant by 3/1 ARM, 3 years fixed, 1 year adjustment periods. Let's say the rate on the 3/1 ARM was 5.5% and this rate was based on the index of LIBOR. This rate would remain 5.5% for the first 3 years of this loan and then thereafter it would adjust. If your margin is 2% and after 3 years LIBOR is 5% this would mean that your new interest rate would adjust to 7%. This is calculated by adding the 5% index, which is LIBOR, plus the 2% margin, which will remain the same throughout the life of the loan and you end up with 7%. In 12 more months let's say LIBOR increases up to 6%, then the new rate on this loan would be 6% index, plus 2% margin to give you an interest rate of 8%. With the preceding example you can see that your index changes and not your margin. Therefore, if you know what your margin is (it should be provided in the copy of all of your closing paperwork that you receive after closing on your mortgage loan) you should be able to provide yourself with a pretty good idea as to what your rate is going to be by simply looking into the current rates of the Index being used for your mortgage rate calculation.
With an adjustable-rate mortgage, on each interest rate change date, an ARM?s interest rate adjustments are based on your loan program's Index plus a margin, as specified on your loan's Note.
Your Index plus your Margin will equal your Mortgage Payment.
Cost of Funds Index (COFI) - The 11th District Cost of Funds is more prevalent in the West and the 1-Year Treasury Security is more prevalent in the East. Buyers prefer the slowly moving 11th District Cost of Funds and investors prefer the 1-Year Treasury Security.
The monthly weighted average Eleventh District has been published by the Federal Home Loan Bank of San Francisco since August 1981. Currently more than one half of the savings institutions loans made in California are tied to the 11th District Cost of Funds (COFI) index.
The Federal Home Loan Banks 11th District is comprised of saving institutions in Arizona, California and Nevada.
Few people who use and follow the 11th District Cost of Funds understand exactly how it is calculated, what it represents, how it moves and what factors affect it.
The predecessor to the 11th District Cost of Funds index was the District semiannual weighted average cost of funds published for a six month period ending in June and December. The San Francisco Bank was the first Federal Home Loan Bank to publish a monthly cost of funds index.
The funds used as a basis for the calculation of the 11th District Cost of Funds index are the liabilities at the District savings institutions: money on deposit at the institutions, money borrowed from a Federal Home Loan Bank (known as advances) and all other money borrowed. The interest paid on these types of funds is the cost of these funds.
The ratio of the dollar amount paid in interest during the month to the average dollar amount of the funds for that month constitutes the weighted average cost of funds ratio for that month.
The average cost of funds is said to be weighted because the three kinds of funds and their costs are added together before a ratio is computed rather than calculating averages individually for the three sources and using a simple average of the three ratios. This gives the greatest weight to the interest paid on deposits, and explains the delayed reaction of the index to rising fixed rate mortgages.
I think understanding the intricacies of the index is not nearly as valuable to a borrower as understanding how it can effect their loan...If they have a desire to know that much detail, and you feel you won't confuse or inundate them with useless information, feel free to explain it to them...Historically, loans using those indexes don't stay active long enough to see the change...
The Cost of Funds Index very closely tracks the performance of the MTA and CODI indexes. All Three, COFI, MTA / MAT, and CODI are very popular indexes for option ARM mortgages which offer low minimum payment options. All three also happen to be at 5 year highs, meaning that if you have one of these COFI option ARM mortgages or an MTA option ARM, you may be well served to consider a fixed rate loan with the same minimum payment option. for more information on these innovative loans, and what it takes to refinance a COFI option ARM or MTA option ARM to a fixed option ARM (which is not an ARM at all in some cases) please call us at 888-275-6788
COFI index - A Cost of Funds Index or COFI is a regional average of interest expenses incurred by financial institutions, which in turn is used as a base for calculating variable rate loans. The interest rate on an adjustable rate mortgage, for example, is often linked to a regional COFI specified in the particular loan documents. COFIs, in turn, are usually calculated by a self-regulatory agency like Federal Home Loan Banks. In California, for example, many home mortgage loans are indexed to the Federal Home Loan Bank of San Francisco. Interest rates on COFI loans and mortgages tend to fluctuate more slowly than variable-rate loans linked to other indexes.
The COFI Cost of Funds Index is a popular index for Pay Option ARM negative amortization home loans.
The Cost of Funds Index is generally a very stable index as well as a lagging indicator of interest rate movements. The cost of funds index is a weighted average of the interest rates paid out for checking, savings, and other depository accounts by a bank. Since banks do not quickly raise the deposit interst rates offered, the COFI tends to be a stable index.
The COFI has historically been one of the lowest index measures in the country.
COFI is a index, Cost of Funds Index. Many lenders use this source of funds to lend on adjustable loans. Historically it has been a favorable index and is one of the most popular among lenders and borrowers alike for adjustable loans. As with any adjustable loan, the index is a key factor as is the margin, since the margin is what the rate will be set at for the first adjustment. Look for loans with low margins.
Interest rate index - "What is an interest rate index? How does it affect my payments?"
Dual index mortgage - I was offered a dual index mortgage. What is it, and how can I use it to my benefit?"
A "Dual Index Mortgage" is a mortgage on which the interest rate is adjustable based on an interest rate index, and the monthly payment adjusts based on a wage and salary index
Current index value - "What is the current index value, where do I find it, and how does it affect my payments?"
Cost of Savings Index (COSI) - "I was told I can determine my payments using the cost of savings index. What is this and how can I use it to determine my payments?"
Cost of Funds Index (COFI) - "I was told I can use cost of funds index to determine my rate for my mortgage. How does this work, and is it worth it?"
Which Index Should I choose? - Loans with an adjustable rate feature are tied to an index. Each index has advantages and disadvantages. You will want to research each of these indexes to see the historical movements.
The history shows that COSI, COFI, MTA have been lower and stable in the market.
Regardless of what type of ARM you are considering, you should always ask your mortgage professional which index the loan will be based off of. It is also important to investigate the past behavior of the index to anticipate future variables. This coupled with knowing your margin will help you to better anticipate future market conditions and the impact it will have on your interest rate.
The Monthly Treasury Average, also known as 12-Month Moving Average Treasury index (MAT) is a relatively new ARM index. This index is the 12 month average of the monthly average yields of U.S. Treasury securities adjusted to a constant maturity of one year. It is calculated by averaging the previous 12 monthly values of the 1-Year CMT.
When deciding what index you want for your home loan you should always research to see the historical trends of the index and where it currently is.
Most home equity lines of credit use the Prime index. Some adjustable rate mortgages use the Prime index also. Other indexes that are used for adjustable rate mortgages are Cosi, Cofi, MTA, LIBOR and CODI. Your mortgage broker can assist in finding which index is best for you.
Cost of Savings Index - The Cost of Savings Index (COSI) is an index used to determine adjustments to the interest rate on ARMs (adjustable rate mortgages). COSI is considered to be one of the most stable indices in the industry. The index adjusts monthly and is derived from money that is received by World Savings from consumers in the form of deposits and then lends the money in the form of mortgages and other loans. The interest rates in effect on these deposits are the basis for the COSI index.
World Savings receives money from consumers in the form of deposits and lends money as home or other loans. The interest rates in effect on these deposits are the basis for the COSI index. It is not based on actual interest paid, but rather the weighted annualized average of all interest rates in effect on World Savings deposit accounts on the last day of each month.
The Cost of Savings Index is known for being a rather stable index, meaning less rapid upward and downward movement. Conversely, an index such as the LIBOR (London InterBank Offering Rate) has shown to be much more volatile with sharper up and down movements.
The COSI is not based on actual interest paid on deposit accounts, but rather on a weighted annualized rate of all interest rates in effect on deposit accounts as of the last day of each month.
