MORTGAGE INDEXES
CDs - This is an index recently developed by FNMA that represents the median rates paid by banks for six-month certificates of deposit. The CD indexes are very volatile and generally considered to react quickly to change in the market, which is good if rates are falling but not good if rates are rising.
Cost of Deposits Index (CODI) - This index is based on rates that banks pay on three-month certificates of deposits. It's characterized by being slow to move - both up and down.
Costs of Funds Index (COFI) - Associated with the 11th Federal Home Loan Bank Board in San Francisco, California, this index is derived monthly and represents the aggregate rate at which California Savings and Loans pay on deposits (www.fhlbsf.com). In recent years it has remained steady and is perhaps the least volatile of all indexes. It's particularly good to use on the upswing of inflation because its one of the slowest indexes to adjust. Most COFI loans don't have caps, however, so if rates rise dramatically, so will monthly payments. Many COFI loans also allow negative amortization.
Cost of Savings Index (COSI) - This index is tied to the average interest rate paid out to consumers, known as the cost of savings. It's the average rate consumers receive on interest-bearing accounts. The rate is very low but a margin is placed on top of the index.
FNMA 60-Day Mandatory Delivery - This is an index for loans that will convert to fixed-rate loans for the remaining term at a future date such as balloons or convertible ARMs. It's based on FNMA's actual required yield for 30-year fixed-rate mortgages due to be delivered within 60 days.
LIBOR (London Inter Bank Offered Rate) - Libor is an abbreviation for "London Interbank Offered Rate," and is the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. LIBOR is used as a base index for setting rates of some adjustable rate financial instruments, including Adjustable Rate Mortgages (ARMs).
National Mortgage Contract Rate (NMCR) - This index is based on the average monthly contract rate charged by all lenders on mortgage loans for previously occupied homes. It's good to use this index on mortgage loans for previously occupied homes. It's good to use this index at the low point in its cycle. It adjusts very slowly and therefore is preferential to buyers. In addition to averaging fixed-rate loan interest rates, other ARM indexes are also averaged and added into this index, allowing it to stay low. Unlike most other indexes, the contract interest-rate index typically carries no additional margin.
Prime Rate - This prime rate published in The Wall Street Journal (www.wsj.com) is a compiled number from money center banks and represents the rate at which they lend to their best customers. The prime rate is not a very volatile index; it generally rises quickly but declines very slowly.
Treasury Bill Constant Maturity (TCM) - Treasury Bills are the most common index. They offer a large array of maturities spanning from 90 days to 10 years. Most ARMs are linked to the one-year TCM. The securities themselves are traded minute to minute; the Constant Maturity is a yield computation that takes some of the volatility out of the index.