10-Year Historical Index Comparison

 

MTA (Monthly Treasury Average)

The Monthly Treasury Average, also known as 12-Month Moving Average Treasury index (12MAT). This index is tied into one of the safest American Indexes, the U.S. Treasury. 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. Because this index is an annual average, it is more steady than the 1-Year CMT index. The MTA and CODI indexes generally fluctuates slightly more than the 11th District COFI index, although its movements track each other very closely, as illustrated on our historical graph.

Although Funding America specializes in Option ARM loans utilizing the MTA index most often, it is recommended that each borrower research and choose the index they are most comfortable with. With the company’s experience since 1979, it is evident that the index movements are similar when averaged out over the year. The two main reasons the MTA index is used most often is because the MTA is tied into the U.S. Treasury, unlike the LIBOR, which is tied into the Eurodollar, and because the index is averaged upon the last twelve months; the incline in the fully indexed rate would be much more gradual if the index should spike…although it would work the same way if the index should drop, as it does often. Please notice the stability of the black line in the above chart versus the red line, which is the LIBOR index.

COFI (Cost of Funds Index)

The COFI stands for the 11th District Cost Of Funds Index. The COFI reflects the weighted average of interest paid by 11th Federal Home Loan Bank District savings institutions for checking and savings accounts. The largest portion of the COFI is represented by interest paid by banks to people’s savings and checking accounts.

Although this index is now slightly higher than the MTA, LIBOR, CODI, COSI, it is the oldest of all indexes and moves much slower than most indexes, which is great for times when rates are climbing but not so great if rates are falling. Since its initial publication in 1981, the COFI has a volatility of 6.2%. The CMT, for example has a volatility of over 20% since its birth.

Funding America C-ARM loan is available using the COFI index. Although this index is used less than the others because the rate is higher, this index is strongly suggested if intentions to stay in the house are for a long period of time. Like all indexes, the COSI is published in the many publications such as the Wall Street Journal on a daily basis.

CODI (Cost of Deposit Index)

The CODI (Cost of Deposit Index) is the 12-month average of monthly average yields on the nationally published 3-month certificate of deposit (published by the Federal Reserve Board.) The average means that the most recent 12 months published are added together and divided by 12. This makes the index steadier than the LIBOR or CMT and most CD indexes, which fluctuate more rapidly because of reactions to the market.

The CODI and MTA generally fluctuate more than the COFI but are used somewhat more often because of more aggressive start rates and fully indexed rates. Funding America offers several varieties of CODI mortgages with interest only options. Today’s fully indexed rate (index plus margin) is lower than 5% APR and start rates are available as low as 1.5%. The most popular use of the Cost Of Deposit Index is used in Funding America C-ARM loan. The CODI is published in the Wall Street Journal on a daily basis.

COSI (Cost of Saving Index)

The COSI stands for Cost of Savings Index. This index is tied into the deposit accounts of the federally insured depository institution subsidiaries of Golden West Financial Corporation (GDW.) This index takes the average the rates of interest of these accounts. GDW operates under the name World Savings.

The COSI adjusts monthly and has a report lag of one month but is considered by most to be one of the most dependable and stable indexes in the industry. Although, according to history, the COSI is a tad bit higher than the CODI and MTA, it is lower than the COFI.

Funding America uses this index more than any other to offer customers an ARM that has a dependable track record and aggressive rates. Like the CODI, the COSI fully indexed rate (index plus margin) is lower than 5% APR and start rates are available as low as 1.5%. The most popular use of the COSI Index is used in Funding America C-ARM loan. The COSI is published in the many publications such as the Wall Street Journal on a daily basis.

LIBOR

The LIBOR is the rate offered by banks in London for U.S. deposits. This index has gained tremendous popularity as an attractive alternative to many of the other index choices because it is an international index that reflects the global economic climate. Basically the index is dependant upon the value of the Eurodollar. Most ARMs, Option ARMs, Pick-A-Paysm loans utilizing the LIBOR index do not have a start rate, negative amortization option…so in fact, a LIBOR based loan could not be an Option ARM because it would not allow the option that a COFI, COSI, CODI, MTA index loan would as seen in the following monthly mortgage statement.

2nd Step: Understanding how an Option ARM Works

Now that you understand the indexes, it is crucial to understand the mechanics of the loan and how it would work. The Option ARM loan has several names: Pick-A-Paysm loan, Cash Flow loan, COFI loan, the C-ARM, Index Loan, etc. Essentially, all are the same thing. Most companies have different terminology for the loan but we call it the Option ARM because it is exactly that…a loan that gives you options. As you can see from the statement above, there are several options on the mortgage statement. Instead of being tied in to one specific mortgage payment that a 15-year fixed or 30-year fixed loan offers, our loan offers options that you can practice on a month-to-month basis. Unlike a conventional loan, we provide the following on each monthly statement…

1. Account Information
Your mortgage is a vital part of your total financial picture. For this reason, we provide up-to-date information about it on your statement each month. At a glance you can see your loan number, interest rate, and payment, as well as your loan’s monthly payment and maturity dates.

2. Activity Since Your Last Statement
This section tracks all account activity since your last monthly statement. It helps you keep track of your loan by showing you how your last payment and total payments for the year were applied. This section also helps you manage your tax liability by detailing any deferred interest and the total interest paid.

3. Payment Options
Four payment options each month give you more control over your monthly cash flow. Pay the best option for you each month. You can also apply additional payments toward your mortgage principal, resulting in an immediate reduction in the required monthly payment for interest-only and standard amortizing options and a possible reduction in your minimum payment at its next adjustment. *The hypothetical rates and payments used in this example are for illustration only.

Statement example

Deferred Interest Consideration (Negative Amortization)

It is important to note that when you choose to defer the payment of interest by making less than the interest-only payment, the amount you defer is added to the loan’s principal balance. Until this deferred interest is paid, you will be charged interest on this additional amount.

Ten Year Fully Indexed Rate Comparison

Below is a comparison between the fully indexed 1-month LIBOR, MTA, COFI, Prime Rate and 1-year Treasury Bill indices and a 30-year fixed rate mortgage from February 1994 to January 2004.

3rd Step: Understanding the Four Payment Options

Any of our index based Option Arm loans are specifically designed to give you greater control over your mortgage payment. You have the option of choosing one of four payment options each month based on your specific cash flow needs at the time.

Minimum Payment
A payment that is set for 60 months at a reduced rate. This option not only maximizes cash flow, giving you more cash each month for other expenses, but may also defer payment of interest on your mortgage loan, potentially allowing you greater flexibility in managing your tax deductions. Plus, this payment will not increase for 5 years, except when your loan is recast every five years or your principal balance exceeds 110% of your initial loan balance.

Interest-Only Payment
Defer paying principal on your loan and improve your monthly cash flow. The money you normally use for the principal portion of your mortgage payment can instead be used for other purposes, such as paying off high cost credit obligations or investing. (This option is not available if the payment would be less than the minimum payment. In this situation, no interest is deferred when you make the minimum payment.)

Two Fully Amortizing Payment Options
Make a principal and interest payment based on a 30-year or 15-year payment schedule. (These options would not be available if the payments are less than the minimum payment. Also, the 15-year payment amount is not available after the 15th year of the loan.)

Option ARM loan vs. Interest Only loan

Funding America also offers a wide variety of Interest Only loans for first and second mortgages and HELOC (Home equity line of credit.). The difference between an Option ARM loan and an Interest Only loan is simple…Option ARM loans allow a borrower to choose from four different options every month: