Like everything else in the financial industry, certificates of deposits have their own index in which investors can gauge their results. This analytical tool is called the Certificate Of Deposit Index or CODI index. Simply put, the CODI is calculated on or near the first Monday of every calendar month by averaging the previous 12 month history of the typical 3 month CD rate.
The most popular use for the CODI index is as a rate determiner for adjustable rate mortgages (ARM). In this capacity the CODI index can be part of the the rate calculation for the readjustment of an ARM. When a person opts into an adjustable rate mortgage the borrower is to offer up a selection of indexes from which the home buyer can choose from. CODI is one of the options that can influence the overall “fully indexed interest rate.”
When referring to the interest rate charged on an ARM that rate is known as the fully indexed interest rate. This interest rate is constructed of the index value (variable) plus the margin (fixed). It is important for borrowers to know this as when it comes to securing an ARM it will be up to their due diligence to determine which index rate, including the option of the CODI rate, will be the most economical decision. The margin will tend to be higher based on the relation between indexes compared to indexes.
The CODI index is a 12-month moving average and is therefore viewed as less volatile compared to other mortgage indexes. If you are considering buying a home, then investigating mortgage indexes will provide you with and advantage as far as researching adjustable rate mortgages. If you are interested in learning more, a quick phone call to your mortgage provider will certainly provide you with more valuable insight on the CODI index and more!