Mortgage Interest Rates

The interest rate is the percentage that the lender charges the borrower on top of the principal loan amount as a fee for extending credit to the customer, and lending them money. Rate fluctuations for Adjustable Rate Mortgages (ARM's) are calculated according to different indexes, and each mortgage company might use multiple indexes for various mortgage programs.

Some of the well-known indexes include:

• T-sec Index: these are the Treasury Secretary indexes with both weekly and monthly values reported by the Federal Reserve. The indexes with weekly values are highly reactive and swing greatly with the changes in the market, according to the fluctuations of the economy. However, there are also annual indexes: the one most often used is called the One Year Treasury Security.

• The COFI Index: represents the savings and loan financial intuitions of southwestern states such as California, Arizona, and Nevada. This index is also slow to respond to the wild fluctuations of the market, because it is largely based upon savings accounts. For the customer the slow reactive time is advantageous when the rates are climbing, because it gives them a small protective cushioning. But, conversely, when the rates are falling, the index is as slow to change. The COFI is mostly used on very short term loans such as a one or six month ARM.

• The LIBOR: the LIBOR (London Interbank offered rate) is an international index, and is based upon currency exchanged between London banks. The LIBOR is the most widely used index for short-term mortgage plans. The BBA, or British Banker's Association posts one version of the LIBOR daily, though it is one among many versions.

The National average interest rates are as follows:

National Monthly Averages, 2004

For more information on mortgage plans tied to an index, visit our section on Adjustable Rate Mortgages.