MTA Option Arms: Holding Their Own The 12 Month Treasury Average (MTA) option ARM is a special financial product designed for sophisticated borrowers who understand finance and economics and need financial flexibility. If handled correctly, MTA option ARMs can be solid planning tools that can improve your cash flow. The MTA option ARM is a mortgage loan with four monthly payment options: a minimum payment, an interest only payment and a fully amortized 30 year payment and a fully amortized 15 year payment. Borrowers choose their payment options each month. This loan type has a stable payment factor and an interest rate that changes during the loan’s life cycle. These changes come from the 12 Month Treasury Average Index, which based on average annual yields on U.S. Treasury securities adjusted to a constant maturity of one year made available by the Federal Reserve. The average is determined by taking the sum of yields from the past 12 months and dividing by 12. The lender then adds a specified number on points, called a margin, to the index to establish the actual ARM interest rate. The margin is always a fixed percentage and is specified in loan documents. The MTA index does not change as rapidly as other market interest rates because it is an average of annual yields. The benefits of this include: higher yields that are offset by lower yields monthly throughout the year; an index that is far less volatile than other pure rate indices; and a buffer against interest rate increases which take longer to affect the MTA than the do other ARM indices. Historically, home loans tied to the MTA index have not exhibited sharp interest-rate increases such as those that occurred in the late 1980’s. The MTA index also has never increased by more than 0.26 percent from month to month in more than a decade. The obvious
benefit lies in the fact that the MTA option ARM allows the borrower
to control the same asset as a traditional, 30-year fixed mortgage
for less money, while they enjoy the same equity appreciation. |
