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.

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.

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.