Buying a home for most Americans is a process that can be difficult to understand. Most Americans get walked through the tedious process by trained professionals. Potential buyers are told only what they need to know to move them quickly through the lending process. They are told what papers they are going to need, and how much money they are going to need for a down payment. Once the basics are covered most buyer are happy enough to get their keys to their new home, and receive their payment book in the mail.
Most first time buyers do not have the time to research in-depth financial regulations and regional laws that pertain to the loan that they are about to receive. The benefit of doing one's homework can save a home buyer thousands of dollars over the life of a 30-year loan – a trusted professional is the only substitute for doing that homework.
One of the areas that most buyers are not familiar with are the indexes that are tied to adjustable rate mortgages. Knowing what index is applied to your mortgage is worth the research, or the time it takes to find a professional for help. The following is a brief explanation of two of the major indexes that are widely used on adjustable rate mortgages.
COSI (cost savings index) this index is tied to the banks own deposits.
CODI (certificate of deposit index) this rate is a representation of the price of three-month certificates.
One of the main differences between these two indexes is CODI is based upon short term borrowing costs. COSI contains long-term CDs that are paying higher yields. In the past, there was not much difference between these two indexes, and a mortgage holder would never really know the difference between the two, but with federal interest rates at an all time low a major difference is being revealed.
A prime example of the amount of money that an adjustable rate mortgage holder can save by choosing CODI over COSI is in the thousands. Over a 24-month period the typical borrower of a $250,000 adjustable rate loan that is tied to COSI could pay $269 a month more than the exact same loan that is tied to CODI.
In some cases borrowers who have made themselves knowledgeable of these indexes after the loans completion have requested that their loans be amended to the more favorable index. The more information that you know prior to committing to a loan can save you thousands of dollars. Asking questions is not a sign of unintelligence; it is the first step in taking control of what has become an in-depth process that can be confusing for most first time buyers.
An important part of buying a home, outside of finding it, is getting new home financing. Visit New Homes Section today to learn about your mortgage options during your search for a new home for sale.
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