What are loan indexes and how they work?
Loan indexes vary; they adjust as economic conditions change. Lenders use various indexes as a base rate for mortgage loans. They then add a certain number of percentage points (a margin), which remains set, and is added to the index to establish the interest rate you must pay. When the index goes up, interest rates on any loans tied to it also go up – based on the terms set forth in the lender's mortgage note.
One Year CMT (Constant Maturity Treasuries) Index
An index published by the Federal Reserve Board based on the monthly average yield of a range of Treasury securities, all adjusted to the equivalent of a one-year maturity. Yields on Treasury securities at a constant maturity are determined by the U.S. Treasury from the daily yield curve. That is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market
One Year MTA
This index is an average of the monthly one-year treasury adjusted to constant maturity for the previous 12 months. Yields on Treasury securities at constant maturity are determined by the U.S. Treasury from the daily yield curve. That is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market.
LIBOR stands for London Inter Bank Offer Rate. It's the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London. It is a standard financial index and can be found in the Wall Street Journal.
11th District Cost of Funds
A monthly cost-of-funds index (COFI) reflecting the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts. The 11th district covers Arizona, California and Nevada. The index is published on the last day of each month and reflects the ‘cost of funds’ for the prior month.
Prime Rate posted in the Wall Street Journal
The prime interest rate is generally used for equity lines of credit. The Journal surveys the 30 largest banks, and when three-quarters of them (23) change, the Journal changes its rate, effective on the day the Journal publishes the new rate. It's the most widely quoted measure of the prime rate, which is the short term lending rate at which banks will lend money to their most-favored customers.
What Index will my Interest Rate be adjusted to?
Many “Interest Only” loans are tied to the LIBOR index, and it is the interest rate offered by specific group of London banks for U.S. dollar deposits of a stated maturity – however some are also tied to the one year CMT or the MTA (links) varying averages of the one year US Treasury. This may be the best time to speak with one of our experts.