Your ARM is referenced to a particular index that changes. Lenders use
that published index to serve as the basis for determining interest rate
changes on adjustable rate mortgage loans. As the indices published rate
fluctuates, so does your mortgage rate. You can find these indices in
your newspaper's Sunday business section. The most commonly used indices
are:
- Treasury Indexed- Adjustments are based on the average interest
rate that the government pays on its debt.
- CD Indexed (certificate of deposit)- Adjusts to certificate of
deposit index.
- LIBOR (London interBank offer rate)- The rate on the
dollar-denominated deposits, also known as Eurodollars, traded
between banks in London.
- COFI (cost of funds index)- The cost of funds is indexed to the
average interest rate that banks in particular states pay their
customers. One of the most common indexes is the 11th district cost
of funds index, which covers banks in California, Nevada and
Arizona.
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