Explanation of the (1.25% "Starting Rate") MTA Index mortgage:
(The "Starting Rate" has nothing to do with the MTA Index.)

Please read below:

12 month MTA - (12-Month Treasury Average Index) is based on the average annual monthly yields of U.S. Treasury Securities, (T-Bill) adjusted to a constant maturity of one year, as made available by the Federal Reserve. This Index is determined by adding together the monthly yields for the most recent 12 months and dividing by 12. Because its an average, higher yields in some months are offset by lower yields in others. This Index has averaged below 5% over the past 14 years.

Add the current monthly MTA Index to a Margin and it will equal the current monthly fully-Indexed Rate; the Margin never changes. Over the last fourteen (14) years, with Mr. Greenspan continually increasing then decreasing the PRIME Lending Rate, the MTA has averaged below 5%. Therefore, if you're worried about your Life Cap (Index + Margin) going up to the max cap (9.95%), then you probably don't understand how the MTA moves. E.g., if you had a 2.40% Margin, the MTA Index would be capped at 7.55%, or 9.95% - 2.40% = 7.55%. Again, this Index has averaged below 5% over the past 14 years (see History of the MTA.) This history (low average) is one of the main reasons why none of our past Clients have ever needed to do a refinance mortgage off of our MTA program. Because when the fixed-Rates start to drop (PRIME Rate/T-Bill is dropping), so does the MTA, including your loan balance. And when the fixed- Rates start to move higher, the MTA only moves slightly higher, and very slowly.

The MTA (Monthly Treasury Averaged) Index loan is an Adjustable Rate Mortgage (ARM.) Because it is one of the slowest moving Indexes either in the US or Europe (*COFI would be the slowest moving), and because it has a 7.5% yearly Payment Cap, a low fixed Margin, a 9.95% max Life Cap, with the ability to make Five (5) monthly payment choices:

1.25% "Minimum payments" for some of the lowest monthly payments offered in the USA.
"Interest-only" payment Option.
"Fully Indexed" (Index + Margin) payment Option:
As of 5/01/04 the MTA Index is 1.225%. If you had a 2.45% Margin {Margin is fixed for the life of loan, and can be higher or lower based upon your initial Loan-To-Value}, your current fully-indexed Rate {Index + Margin} would be 3.675%. If you had this 2.45% Margin for the last ten (10} years, your fully-indexed Rate would have averaged 7.019% or {4.569% + 2.45%.} That's a great Interest Rate considering this allows for loan amounts as high as $2,500,000. Whether you choose to make only the Minimum payments or the full P.I. payments, your mortgage will be paid off in 30 or less.
"15 yr." payment amortization Option.
Pay any amount over the "Minimum" pmt. (This option is always left blank on your monthly statement.)

We recommend the MTA program as the number 1 mortgage loan offered today in the USA. The COFI mortgage loan would be our 2nd choice. Next would come the COSI, with the CODI in last place. All four programs/mortgages work exactly the same way, e.g., 5 different monthly payment options, a yearly 7.5% payment cap protection, a Life Cap, fixed Margin, slow moving monthly Index, but there are some glaring differences:

History proves that the MTA mortgage loan has offered a lower fully-indexed Rate (index + margin) vs. the COFI, COSI and CODI's fully-indexed Rate over the past 10-15 years.

Currently, the MTA fully-indexed Rate is lower than the COFI, COSI and CODI.

MTA and COFI offer a 9.95% life cap vs. the COSI/CODI's life cap of 11.95%.

MTA offers the lowest Margins (this is Key.)

MTA offers a lower "Starting Rate" of 1.25% vs. the COFI's 1.75%. (The MTA's 1.25% "Start Rate" is a true P.I. Rate for 30 days vs. the COSI and CODI which begins {day one} with the fully-indexed Rate.)

You are allowed to order an Appraisal with any licensed appraiser in your state (99% of the time), not so with the COSI and CODI (ultra conservative...)

The fact that most MTA loans are never sold (Lender has confidence the Index will never "spike-up" and greatly affect your monthly payment), and because this Index is one of the safest and slowest moving of all indexes used for home mortgages, yearly 7.5% payment caps, low fixed Margins, 9.95% Life Cap, and a 1.25% Minimum payment option, is why the owners of AAMI have the MTA tied to their homes.

*People always ask *me "why have I never heard about this program." My response is that Real-Estate Agents control most of what you're going to be taught about mortgage loan options when you buy your new home. My experience with RE Agents is they like to keep things "simple" when it comes to your financing options. They usually recommend a 30 yr. fixed, 15 yr., or 1 year adjustable rate mortgage. Also, there are only a few Lenders in the US that offer this program, and most RE Agents have their own Mortgage company which will want to sell you what they offer, e.g., 30 yr. fixed, 15 yr. fixed, or 1 yr. ARM.

The reward of obtaining this Adjustable Rate Mortgage is you have the Option to start off with lower mortgage payments. These lower mortgage loan payments could help you stay out of future credit card debt, or get you out of existing credit card. If you have no debt, you could use the extra cash flow to buy things for your new house (without having to use credit cards.) Or the lower mortgage payments will help you re-build your savings portfolio for your children's college fund or your family's future retirement. Or, if you loose your job and need to take a few months to go back to school for re-training, etc....

The best way to get a visual of the potential "increased" cash-flow of the MTA program vs. a fixed rate, is via our Excel Spreadsheet (below.) What you'll see, and hopefully (think about), is the difference between a "lower Interest Rate" vs. obtaining a "lower payment." E.g., with the MTA Option ARM, you'll have at least 5 different ways to make a monthly payment. With a Fixed Interest Rate, you'd only have two (P.I. and the ability to pay more than the P.I.) Hence, with Option for lower payments, you can leverage your future house payments in a more beneficial way.

The MTA "Minimum" payment" are guaranteed for the first five (5) years of the loan not to move higher or lower than 7.5% of the prior years "Minimum pmt." regardless of the movement of the MTA Index.

If you choose to pay only the "Minimum payments" and you saved and invested the difference between not making the MTA's monthly Principal and Interest payment (Index + Margin), or a Fixed Rate payment (the other Broker is trying to sell you on) and invested this extra cash into a ultra safe balanced portfolio, this savings could potentially double every 7.2 years if you earned at least 10%. If you earned just 5%, it would double every 14.4 years, etc... Therefore, we believe that you could actually pay your MTA mortgage off faster by making only the "Minimum payments" (IF) you saved and invested just the first 5 year difference in monthly payments into an ultra safe Mutual Fund or better yet, the DOW 30 or S&P Indexed Funds. If you were disciplined enough not to touch the initial 5 years savings and re-invested the dividends automatically every month, this money could grow fast enough (if you could earn at least 8% annually) to allow you to pay your mortgage off in about 20 to 25 years (by adding a one time extra pmt. in year 20 to 25), and still have savings left over.

$250,000 example of the MTA 1.25% "Minimum" payment vs. the MTA "fully indexed" payment
No matter which Payment Option you choose, your loan will still be paid-off in 30 years or less. The MTA mortgage is usually never sold to other Banks.

The risk of obtaining this adjustable rate mortgage, is the possibility that your future Payments and Interest Rate could move higher then the Fixed Rate you could have chosen. However, when the future Fixed Rates eventually start to move back down, the MTA Index will also start to slowly inch back down. Therefore, you need to keep in mind it's the over-all "average" of the Index + Margin for the last 13, 10, 5 and 1year. With the MTA adjustable rate mortgage, you might not need to apply for a refinance loan again. This could also be true if you received your Fixed Rate at an historic low, but what about all the Folks that received their Fixed Rate in 1990, or 1995, or 2001, they thought the then offered Fixed Rate was a great deal. Nevertheless, all of these Folks would have needed to refinance several times just to get down to a 5% or 6% range today, by spending much monies in closing cost and always going back to a 30 year payoff. However, if you had obtained this MTA mortgage in the early 90's, today, you'd have a Interest Rate in the 4) percentage range (without ever having to refinance.)

12-month Treasury average (MTA or MAT) indexes: Rates on adjustable rate mortgages indexed to the 12-month average of the one-year Treasury bill are usually called the "12 MAT" or "12 MTA." Every month, the U.S. Treasury calculates and publishes the average yield on a constant-maturity 1-year Treasury bill for the previous month. The 12 MAT index takes the average of the last 12 averages.

Adjustable rate mortgage (ARM) indexes explained:

Like the COFI, the rate on a 12 MAT is adjusted every month. Depending on the loan program, the monthly payment might be adjusted every month or once a year.

Rates indexed to the last 12 monthly averages for 1-year Treasuries move slowly. "If interest rates were to go up 100 basis points tomorrow," says Goldstone -- in other words, if they rose 1 percentage point -- "that index would go up only one-twelfth of 1 percent the next month. And then the second twelfth the next month, and so on."

The 12 MAT index reacts slowly to fluctuations in short-term rates and smoothes them out.