6-Month CD Rate
The 6 Month CD interest rate takes into account what secondary markets average for nationally traded 6 Month CDs. For ARM loans, that rate can increase or decrease every 6 months. The frequent Index changes those rates, weekly, and can be unpredictable.
For most ARM loans, the market environment (Index) determines what will set an interest rate. Those rates usually increase or decrease after a year, specifically for a 1-Year T-Bill. What is the rate of a 1-Year T-Bill? That loan rate will depend upon the Index of any given week (because it often changes weekly). For other ARM loans such as Hybrid ARMS, low and favorable interest rates are fixed at first, then eventually adjust. Hybrid ARMs are attractive with low rates at first, available at 1,3,5,7, or sometimes 10 year periods, that lock in a low fixed rate, and then adjust according to the Index (market forces) at the time of adjustment. The rate for a 3-1 ARM loan, 5-1, 7-1 or 10-1 varies by week.
For a 3-Year ARM loan, the interest rate will depend upon what the 3-Year T-Bill's rate is in the market Index. A 3-Year T-Bill will adjust (increase or decrease) after 3 years. That adjustment is based on the weekly Index rates, which can change each week and be unpredictable.
For a 5 year ARM loan, the interest rate will depend upon what the 5-Year T-Bill's rate is in the market Index. A 5-Year T-Bill will adjust (increase or decrease) after 5 years. That adjustment is based on the weekly Index rates, which can change each week and be unpredictable.
The Prime Lending Rate is the interest rate that banks charge each other for loans. For the interest in ARM loans, that rate is set in relation to the Prime Rate. When you want to borrow money for an ARM loan, you need to make sure at what percent you are borrowing, and if that percent is in addition to the Prime Rate of the lending bank, or the Federal Reserve. The Prime Lending Rate is effected by the Federal Reserve lending rate to banks, and is historically 3% above the Federal rate.
The Index for a 12-Month Moving Average 1-Year T-Bill applies to ARM loans. This average monthly interest rate from Treasury Securities continuously adjusts on a per-year basis until it matures. A 12 Month Average for 1-Year T-Bills for ARM loans is followed in place of the Treasury Securities (T-Sec) Index which is more of a 52 week Bill-based Index.
Cost of Funds Loan Index (COFI)
The COFI Index is an Adjustable Rate Mortgage Index is used by banks to determine the interest rate for a loan. The rates are derived by taking an average from a monthly published set of rates set by banks (of the 11th district). For ARM loans, the rate can increase or decrease on a monthly basis. Some lenders will take an average of the 12 month COFI rate Index to set the final rate ; yet more borrowers seek fixed rates compared to ARM loans, relying on COFI Index rates.
LIBOR Interest Rate Benchmark
LIBOR or London Interbank Offered Rate is the rate at which banks are prepared to lend to each other and the benchmark (standard) that follows the agreed upon rates. LIBOR involves seeing what projected rates may or could be, then after publishing those rates (via the British Bankers Association), the benchmark has been set. At that point, any one wishing to obtain a loan from a bank may actually be using the rate published from LIBOR for that day. Some US banks rely upon the LIBOR rates when providing loans.
National Average Contract Mortgage Rate
The National Average Contract Mortgage Rate is an average contract interest rate, published by some bank lenders, for home mortgage loans. This rate is beneficial when looking at historical values for indexes referenced by ARM loans.