COSI
Cost of Savings Index
The CODI Indexed Loan | The COSI Indexed Loan | Advantages of a World Savings Loan | Index Performance Comparisons | A Tale of Three Brothers
WHAT Does It Measure: COSI is the weighted average rates of interest paid on deposit accounts (Checking, Passbook Savings, Certificate of Deposit) held by World Savings. Currently World has over $24 Billion in its customer's savings accounts. It does not include borrowed money or advances from the Federal Home Loan Bank.
WHEN Is The Index Calculated: The index is calculated monthly. The various interest rate accounts are compiled and their sum is averaged and factored by the number of days in that particular month. The rate is available from World Savings on the 15th day of the following month.
WHO Calculates The Index: World Savings and Loan (one of Americas strongest and most admired thrifts) based on data from savings rates paid to customers, verified by the accounting firm of Deloitte & Touche.
WHERE Are The Accounts Held: World has savings operations in 9 states; Kansas, Florida, Colorado, California, New Jersey, Texas, Illinois, Texas, and Arizona.
World Savings Cost of Savings Index is consistently one of the most stable indices used in the lending industry. While Prime and LIBOR may change daily and the T-Bill index is at the mercy of Wall Street, the Cost of Savings Index is merely a report card of the the interest paid on instruments of deposit at World Savings.
Imagine that the COSI index is a big bath tub, but instead of water it is filled with approximately 24 billion droplets of money.
The tub has long since filled and is now full to overflowing. As the “money” droplets continue to drip into the tub; sometimes hotter (higher interest rates on savings accounts), and sometimes colder (lower interest rates on savings accounts), the overall temperature of the water in the tub changes very little.
Therefore, changes in the interest rates on new deposits don't affect the actual interest rates on a 1:1 ratio because of the dampening effect the large pool of money has on the average. The broad base of savings accounts (from passbooks to long term certificate) results in the stability and dampened market sensitivity of the Cost of Savings Index.
In addition to the above reasons, this index is extremely stable for three major reasons.
· COSI represents a cost to World Savings; therefore, there is a huge incentive for World to minimize what they pay on savings deposits.
· A large percentage of COSI is based on extremely stable Passbook Savings and Checking Account rates
· Certificate of Deposits are time deposits and are calculated into the index throughout the term of the CD. This has a moderating effect on the peaks and valleys of the index.
COSI is one of the slowest moving and most stable of all ARM indices. This stability protects you from large interest rate and payment changes, which means that your mortgage will always remain affordable.
PICK A PAYMENT – OPTIONS LOAN
The Pick a Payment / Options Loan based on the Cost of Saving Index (COSI) is designed to give the borrower significant cash flow savings for the fist five years of homeownership.
The payment rate on the loan is 1.50%. This is the rate used to determine the minimum payment due on the loan. The interest rate is for the first month is determined by the fully indexed value: COSI + margin. From this point forward the interest rate will adjust monthly with COSI (the average rate paid on savings accounts at World Savings); the most stable index for adjustable rate mortgages.
The true advantage of this loan is flexibility. The borrower can continue to make monthly mortgage payments at the level established by the payment rate. This low payment is fixed until the yearly anniversary date, at which time it will adjust. The annual payment adjustments are capped at 7.5% of the previous year’s minimum payment (i.e., $1,000 monthly payment would go to a maximum of $1,075 the next year). This cap allows the borrower to budget for annual payment changes well into the future.
If the borrower chooses to make the minimum payment, a portion of the interest due may not be covered by the minimum payment. This is known as deferred interest. Each month the borrower will receive a comprehensive payment statement. This payment statement displays all the financial data associated with their mortgage. The bottom portion of the statement is the payment coupon that gives the borrower four payment options;
1. Minimum Payment
2. Full Interest Payment
3. Full Principal and Interest Payment
4. Fifteen Year Payment
It is these four choices that give the borrower total control over their mortgage payment. They have the option to make the full payment or to defer the interest and enjoy greater cash flow.
It is this added flexibility that makes the Pick a Payment / Options Loan very consumer friendly. If the borrower chooses to defer the interest, the interest is added to the loan balance. This is sometimes called negative amortization. Because of the four payment options, deferred interest is always at the borrower’s discretion.
Even if the borrower decides to defer the interest due, their equity position in the property is maintained under most circumstances. Because most of the communities in the Puget Sound Area have an appreciation rate of at least 3%, the value of their home will increase faster than the potential deferred interest. *
An excellent way of minimizing deferred interest is the unique Equity Builder bi-weekly payment schedule. This program applies a half payment every two weeks. This equals 26 half payments per year, or 13 full payments. The 13th payment, which has been dividend evenly between the 26 half payments, is applied completely to principal (resulting in rapid amortization) or to any outstanding deferred interest (this limits the amount of deferred interest so the borrower has very close to an interest only loan for the first three years).
The Equity Builder bi-weekly loan is a fantastic way for borrowers to take advantage of substantially lower mortgage payments in the initial years of homeownership, when low payments are so important while keeping the amount of deferred interest at a minimum. The Equity Builder bi-weekly loan pays off years before tradition 30 year fixed rate loans, saving the borrower tens of thousands of dollars over the life of the loan.
One of the most attractive aspects to the Pick a Payment / Options Loan is that home owners can actually use it as a means to free up cash flow for investment into a retirement plan, college fund, liquid savings or just paying off high interest credit card debt. Used in this way, the Pick a Payment / Options Loan literally helps people to build their worth by using a small portion of their home equity to create and maintain a wealth-building strategy. No other home loan provides this much benefit to the homeowner.
The Pick a Payment / Options Loan gives the borrower the ability to look at their home as an investment tool, and allows them the flexibility to choose the financial option that will benefit them the most.
*This is not a forecast of future interest rates. Future rates will effect amount of deferred interest.
The CODI Indexed Loan | The COSI Indexed Loan | Advantages of a World Savings Loan | Index Performance Comparisons | A Tale of Three Brothers
For more information, email or call Dan at 425-605-3130.
Email is dcrittenden@homestone.com
Dan
Crittenden
Senior Lending
Officer
Homestone Mortgage
An equal housing lender.