Interest Only Indexes
Mortgages are as diverse as the population of California. The good news is that with all the different mortgage programs offered, one is bound to suit your needs. If you are interested in an Interest Only Mortgage that comes with an adjustable interest rate, keep reading to find out how you can customize your loan to suit your needs.
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Overview of the Interest Only Indexes
The Interest Only Mortgage comes with two parts; in the initial part, you only pay on the interest portion of your term. In the second part, you make payments on the interest and principal. For the duration of the mortgage, you can pay with either an Adjustable Interest Rate, or a Fixed Interest Rate. If your Interest Only mortgage comes with an adjustable interest rate, then your interest rates will change according to one of the following three indexes: LIBOR, COSI, or COFI.
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Common Questions: Advantages of the Interest Only Indexes
- LIBOR stands for London Interbank Offered Rate and is a rate determined by the rate at which London banks lend unsecured funds to each other. This index is often considered the lowest amongst the three indexes.
• COSI stands for the Cost of Savings Index. This index is the average of the interest rates on the deposit accounts of the depository institution subsidiaries of Golden West Financial Corporation (GDW). COSI is considered one of the safer indexes in which you can index your Interest Only Mortgage.
• COFI stands for Cost of Funds Index. It reflects the interest rate paid by 11th Federal Home Loan Bank District savings institutions. COFI is the slowest reacting index. It is a slow reacting index because it is based on interest paid on savings accounts. Its slow reaction period is beneficial to you if rates start to rise, but hurts you if rates are falling.
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