What you ought to know (#10)...

What are Indexes, and how do they affect my loan?

An index is what is used to determine the interest rate of your loan (usually tied to a margin on adjustable rate mortgages). It is a statistical indicator, or reference, published by financial institutions to reflect changes in market interest rates. Your index can actually be anything you agree upon, but is normally associated with U.S. Treasury bills or something called a LIBOR.

LIBOR stands for London Inter-Bank Offered Rate, and is quite similar to the federal funds rate found in the United States. The LIBOR is released the first business day of each month, and is the index which banks lend money to one another, in foreign markets, over the short term.

Other indexes used are:

COFI (Cost Of Funds Index) or COSI (Cost Of Savings Index) ? a weighted average of savings, checking, money market and short-term CD´s released monthly

MTA (Monthly Treasury Average) or TCM (Treasury Bill Maturity) ? based on the average monthly yields of U.S. Treasury Securities (T-bills)

Indexes are used to determine the interest rate at adjustment time on adjustable rate mortgages.

Bottom-line...if you are looking for an adjustable rate mortgage, and are not sure what type of index is best for you, check Arrowhead Home Loans.