There are many possible ARM indexes. Each one has distinct market characteristics and fluctuates differently. The most common indexes are:

   CD: Certificates of Deposit

   CMT: Constant Maturity Treasury

   CODI: Cost of Deposit Index

   COFI: 11^th District Cost of Funds Index

   COSI: Cost of Savings Index

   LIBOR: London Inter Bank Offering Rates

   MTA: 12-Month Treasury Average

Certificates of Deposit (CD)

These indexes are averages of the secondary market interest rates on nationally traded Certificates of Deposit. The Certificates of Deposit (also known as CDs) is usually issued by banks and other financial institutions. They pay a fixed rate of interest for a specific period of time. The Certificates of Deposit of various maturities, including 1-Month, 3-Month, 6-Month and 1-Year, are used as ARM indexes. The 6-Month Certificate of Deposit (6-Mo CD) is the most popular of the CD indexes.

The CD indexes are very volatile and generally considered to react quickly to change in the market, which is good for you if rates are falling but not good for you if rates are rising.

Constant Maturity Treasury (CMT)

These indexes are the weekly or monthly average yields on U.S. Treasury securities adjusted to constant maturities. Yields on Treasury securities at "constant maturity" are interpolated by the U.S. Treasury from the daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

The CMT indexes are volatile and move with the market. They reflect the state of the economy, and respond quickly to economic changes. These indexes react more slowly than the CD Index, but more quickly than the COFI Index or the MTA index.

The CMT indexes are reported by the Federal Reserve Board.

Cost of Deposit Index (CODI)

The Certificate of Deposit Index (CODI) is the 12 month average of the monthly average yields on the nationally published 3-Month Certificate of Deposit rates. Information on monthly yields on 3-month certificates of deposit (secondary market) is published by the Federal Reserve Board. Lenders calculate the average by adding the 12 most recently published monthly yields together and dividing the result by 12.

Because this index is an annual average, it is much more steady than CMT and CD indexes which are very volatile and generally considered to react quickly to change in the market. The CODI and MTA indexes generally fluctuate slightly more than the 11th District COFI, although their movements track each other very closely. The MTA, COFI and CODI-indexed ARMs work much the same way.

11^th District Cost of Funds Index (COFI)

This index reflects the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts, advances from the FHLB, and other sources of funds. The 11th District represents the savings institutions (savings & loan associations and savings banks) headquartered in Arizona, California and Nevada.

Since the largest part of the Cost Of Funds index is interest paid on savings accounts, this index lags market interest rates in both uptrend and downtrend movements. As a result, ARMs tied to this index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good for you if rates are falling.

Cost of Savings Index (COSI)

This index is the weighted average of the rates of interest on the deposit accounts of the federally insured depository institution subsidiaries of Golden West Financial Corporation (GDW). All of the depository institution subsidiaries of Golden West Financial Corporation operate under the name World Savings.

World Savings receives money from consumers in the form of deposits and lends money as home or other loans. The interest rates in effect on these deposits are the basis for the COSI index. It is not based on actual interest paid, but rather the weighted annualized average of all interest rates in effect on World Savings deposit accounts on the last day of each month.

The COSI adjusts monthly and has a one-month reporting lag. It is computed on the last day of each calendar month and is announced on or near the last business day prior to the fifteenth day of the following calendar month.

London Inter Bank Offering Rates (LIBOR)

London Inter Bank Offering Rate (LIBOR) is an average of the interest rate on dollar-denominated deposits, also known as Eurodollars, traded between banks in London. The Eurodollar market is a major component of the International financial market. London is the center of the Euromarket in terms of volume.

The LIBOR is an international index, which follows the world economic condition. It allows international investors to match their cost of lending to their cost of funds. The LIBOR compares most closely to the 1-Year CMT index and is more open to quick and wide fluctuations than the COFI rate.

12-Month Treasury Average (MTA)

The Monthly Treasury Average, also known as 12-Month Moving Average Treasury index (MAT) is a relatively new ARM index. This index is the 12 month average of the monthly average yields of U.S. Treasury securities adjusted to a constant maturity of one year. It is calculated by averaging the previous 12 monthly values of the 1-Year CMT. Because this index is an annual average, it is more steady than the 1-Year CMT index. The MTA and CODI indexes generally fluctuates slightly more than the 11th District COFI.

If you're deciding which index is better you should understand that there probably is no such thing as a "good" index or a "bad" index. Each index has its advantages and drawbacks, and is used in different situations. All of the above indexes are available at 24/7 Neg Am Loans.