Adjustable Rate Mortgage Indexes
These are some of the most common indexes used for
Adjustable Rate Mortgages. They can be confusing, so please do not
hesitate to contact us with any questions you might have! Please check
our Mortgage Terms Glossary for
commonly used mortgage terminology.
LIBOR
This is one of the most common indexes in use
today. L.I.B.O.R. stands for the London Interbank Offered Rate, the
interest rates that banks charge each other for overseas deposits of
U.S. dollars. This index is used on the majority of ARM loans. With the
traditional one year adjustable rate mortgage loan, the interest rate
is subject to change once each year. The 3/1, 5/1, 7/1 and 10/1 ARM
loans offer a fixed interest rate for a specified time (3,5,7,10 years)
before they begin yearly adjustments. These rates are available in
1,3,6 and 12 month terms. The index used and the source of the index
will vary by lender. Common sources used are the Wall Street Journal
and Fannie Mae.
6-Month CD Rate
This index is the weekly average of secondary
market interest rates on 6-month negotiable Certificates of Deposit.
The interest rate on 6 month CD indexed ARM loans is usually adjusted
every 6 months. Index changes on a weekly basis and can be volatile.
1-year T-Bill
This index is the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity of 1 year. The 3/1,
5/1, 7/1 and 10/1 ARM loans offer a fixed interest rate for a specified
time (3,5,7,10 years) before they begin yearly adjustments. These
programs will typically not have introductory rates as low as the one
year ARM loan, however their rates are lower than the 30-year fixed
mortgage.
3-year T-Note
This index is the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity of 3 years. This
index is used on 3/3 ARM loans. The interest rate is adjusted every 3
years on such loans. This type of loan program is good for those who
like fewer interest rate adjustments. The index changes on a weekly
basis.
5-year T-Note
This index is the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity of 5 years. This
index is used on 5/5 ARM loans. The interest rate is adjusted every 5
years on such loans. This type of loan program is good for those who
like fewer interest rate adjustments. This index changes on a weekly
basis.
Prime
The prime rate is the rate that banks charge their
most credit-worthy customers for loans. The Prime Rate, as reported by
the Federal Reserve, is the prime rate charged by the majority of large
banks. When applying for a home equity loan, be sure to ask if the
lender will be using its own prime rate, or the prime rate published by
the Federal Reserve or the Wall Street Journal. This index usually
changes in response to changes that the Federal Reserve makes to the
Federal Funds and Discount Rates. Depending on economic conditions,
this index can be volatile or not move for months at a time.
12 Month Moving Average of 1-year T-Bill
Twelve month moving average of the average monthly
yield on U.S. Treasury securities (adjusted to a constant maturity of
one year.). This index is sometimes used for ARM loans in lieu of the 1
year TCM rate. Since this index is a 12 month moving average, it is
less volatile than the 1 year TCM rate. This index changes on a monthly
basis and is not very volatile.
Cost of Funds Index (COFI) - National
This Index is the monthly median cost of funds:
interest (dividends) paid or accrued on deposits, FHLB (Federal Home
Loan Bank) advances and on other borrowed money during a month as a
percent of balances of deposits and borrowings at month end. The
interest rate on Cost of Funds (COFI) indexed ARM loans is usually
adjusted every 6 months. Index changes on a monthly basis and it not
very volatile.
Cost of Funds Index (COFI) - 11th District
This index is the weighted-average interest rate
paid by 11th Federal Home Loan Bank District savings institutions for
savings and checking accounts, advances from the FHLB, and other
sources of funds. The 11th District represents the savings institutions
(savings & loan associations and savings banks) headquartered in
Arizona, California and Nevada. Since the largest part of the Cost Of
Funds index is interest paid on savings accounts, this index lags
market interest rates in both up trend and downtrend movements. As a
result, ARMs tied to this index rise (and fall) more slowly than rates
in general, which is good for you if rates are rising but not good for
you if rates are falling.
National Average Contract Mortgage Rate (NACR)
This index is the national average contract
mortgage rate for the purchase of previously occupied homes by combined
lenders. This index changes on a monthly basis and it not very
volatile.
Homex Financial offers a wide variety of loan
products based on the above indexes. Although the various indexes and
how they might affect your mortgage refinance or home purchase can be
confusing, we are dedicated to helping you understand the options
available to you.
More Adjustable Rate Rate Mortgage
information.
Adjustable
Rate Mortgage Components
Adjustable
Rate Mortgage Basics
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