Mortgage Indexes
There are a variety of mortgage indexes that all mortgage loans are tied to. Here are the main ones:
CODI – Certificate of Deposit Index
COFI- 11th District Cost of Funds Index
COSI – Cost of Savings Index
LIBOR – London Interbank Offered Rate
MTA – Monthly Treasury Average
When these indices move, your rate may move if you’re in an adjustable-rate mortgage. Most banks and lenders don’t stress the index unless it’s tied to a negative-amortization loan or a monthly arm program. And usually a bank will stick to one main index for the bulk of their products, with my company and many others choosing the LIBOR as it tends to be the most accurate and up-to-date mortgage index available.
Prime is the key rate the Fed comes up with at their monthly meetings. It can fluctuate greatly or not at all depending on the state of the economy and the inflation rate. When inflation is kept in check the Fed can drop the Prime rate, but when the economy is moving too fast, the Fed will often slide Prime up as needed to tame inflation.
The CODI index is based upon the 12-month average of 3 month CD accounts. CD accounts tend to be rather volatile, which carries over to this index. It still conforms to other major indexes, but does so in a more sporadic manner.
The 11th District COFI is based on the cost of savings institutions in California, Arizona, and Nevada. It is probably the most steady and slow moving of these mortgage indexes, but tends to be higher. The main basis for this index comes from the interest paid on savings accounts with longer maturities, so the relative lag-time creates a slower reaction time to market. COFI-based products can be the best way to maintain a steady rate on an adjustable-rate mortgage loan program.
The COSI index is based upon the average of all interest rates on World Savings deposit accounts. It tends to mirror the rate World Savings offers on deposit accounts. It’s a very stable index with about a one-month lag due to it’s price being based on the prior months total annual average of interest on deposit accounts.
The LIBOR is known as a rather aggressive index, but offers a lower margin for homeowners looking to secure a lower initial rate.
The MTA is slightly more conversative than the LIBOR, although it boasts a higher margin, so your initial rate will tend to be higher than a LIBOR based loan product.
