CODI - Cost Of Deposit Index
Cost Savings - The CODI ARM has averaged a "lower" rate than fixed rates which made these mortgages more affordable for borrowers.
Easier Qualification - ARM loans offer more lenient and flexible qualification standards than fixed rate mortgages so borrowers can qualify for a larger house.
Assumability - Unlike fixed rate mortgages, ARM loans offer assumablity which makes the home easier to sell in the future.
This index is so stable, it's almost a fixed rate but it has all the benefits of an Adjustable Rate Mortgage (ARM).
SIX YEAR HISTORY OF RATES
Statistically, most borrowers move, refinance, or pay off their mortgage every 5 to 7 years. Let's assume that six years is the average.
CODI (Certificate Of Deposit Index): 6 Year average = 4.56%
Please note that over the past 7 years from 1997 through 2003........
The most the Index increased in a 12 month period was 1.209%, when the index moved from 5.114% in October 1999 to 6.323% in October of 2000.
In a speech to a credit union group, Fed Chairman Alan Greenspan questioned whether fixed-rate mortgages were the most cost-effective means of financing a home purchase. He said "American homeowners clearly like the certainty of fixed mortgage payments" but pay several thousands of dollars a year for the benefits.
Greenspan said homeowners
"might have saved tens of thousands of dollars had they held
adjustable-rate mortgages rather than fixed-rate mortgages during the
Why is CODI the "right" choice as an Adjustable Rate Mortgage Index?
Historically, CODI does not move up or down as rapidly as market interest rates such as the prime rate, the discount rate, libor, or Treasury bill rates. Because CODI is calculated using a twelve-month moving average, higher CD yields are offset by lower CD yields. This average creates a less volatile index in which rates change less rapidly, allowing customers greater ability to plan financially.
What is the Cost Of Deposit Index?
The Cost Of Deposit Index (CODI) is a twelve-month moving average of the three-month certificates of deposit index, as published by the Federal Reserve Board.
3-month certificates of deposit (secondary market) are an average of dealer offering rates on nationally traded certificates of deposit that are annualized based on a 360 day-year for bank interest, As of the date of this disclosure, the Federal Reserve Board publishes the index in its Federal Reserve statistical release, H.15. For purposes of determining the index, "published means first made available to the public by the Federal Reserve Board.
We calculate the average by adding the twelve most recently published monthly yields together and dividing the result by twelve. The result is then rounded to the nearest 1,000th of one percentage point.
Where can I get information about the index?
You can get information about monthly yields on 3-month certificates of deposit (secondary market) from:
The nearest branch of the Federal Reserve bank listed in your local telephone directory.
Federal Reserve statistical release H.15 which can be found in the Business Publications section of most public libraries.
Wall Street Journal