12-MTA Mortgage Loans
12-MTA mortgage loan is an adjustable rate mortgage (ARM) based on the 12 Month Treasury Average. An adjustable rate mortgage is one where the interest rate charged by the lender changes over the life of the loan.
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How much the rate changes is based on several factors but one of them is the index. With a 12-MTA loan, the index is the 12 Month Treasury Average. The interest charged is the 12-MTA at the time the loan is recalculated plus a margin. Margins vary with different lenders and loans but you can expect a margin on an 12-MTA loan to be about 2.5% to 2.9%.
The 12 Month Treasury Average is calculated annually. So if your loan is based on this index it will probably be recalculated annually after the introductory period. All ARM’s have a period of time where the rate is fixed.
The length of time where that initial rate is fixed, can change the margin you pay on your loan. Generally, the longer the fixed period of time, the higher the margin.
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The 12 Month Treasury Average is just one index of many that are used for ARM’s. Other commonly used indexes are:
All indexes are not the same. Indexes like the LIBOR are based on spot prices. 12-MTA is an average. Averaged indexes tend to respond to changes in the market slower than spot indexes. Spot indexes usually have lower margins to compensate for the added risk.
One of the advantages of the 12-MTA as an index is that you can see the changes coming before they actually hit your monthly payment. The number is calculated from the 12 month average of the CMT. The CMT is an average of the monthly or weekly yield on US U.S. Treasury securities. But the 12-MTA is always calculated from the previous year. If you watch the CMT, you’ll be able to predict how much your interest rate will change.
Other factors that will influence how much your rate changes is the annual cap and the life of the loan cap. Make sure you understand all the terms of you loan before sign.
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