CODI
Certificate of Deposit Index
WHAT Does It Measure: CODI is the twelve-month moving average of the Three Month Certificate of Deposit Index as reported by the Federal Reserve Board. The Three Month Certificate of Deposit Index is the simple average of rates on negotiable certificate of deposits nationally traded in the open market.
WHAT Is A Certificate of Deposit: A CD is a savings instrument that is issued by banks and thrifts and guaranteed by FDIC insurance. CDs are inherently less volatile than other investments due to the lower returns they project. 3 Month CDs provide the LOWEST returns possible due to their short term, but provide the safest haven for short-term investments.
WHEN Is The Index Calculated: The index is calculated monthly. The new index adds the current 3 Month CD and drops off the oldest 3 Month CD. The values are then added and divided by twelve to arrive at the new average index. The rate is available from World Savings on the 1st business Monday of the month or can be calculated by the borrower based on the Federal Reserve data.
WHO Calculates The Index: World Savings and Loan (one of Americas strongest and most admired thrifts) based on data from the Federal Reserve. Individuals may also calculate the index by averaging the values of the last twelve monthly 3 Month CD rates as published by the Federal Reserve. (available at www.federalreserve.gov/releases/H15)
WHY use The Index: Because the index is based on a twelve month moving average, higher CD yields are offset by lower CD yields, thus eliminating the peaks and valleys associated with standard indices. This average creates a less volatile index in which rates change less rapidly. Historically CODI does not move up or down as rapidly as the Prime Rate or Treasury Bill Rates.
World Savings Certificate of Deposit 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 Certificate of Deposit Index is an average of savings rates over the last year.
CODI 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 Certificate of Deposit Index (CODI) is designed to give the borrower significant cash flow savings for the first 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: CODI + margin. From this point forward the interest rate will adjust monthly with CODI (the twelve month average of 3 month certificates of deposit); an extremely 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;
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Minimum Payment
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Full Interest Payment
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Full Principal and Interest Payment
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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 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 Marm-1 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 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 Stability of a CODI Indexed Mortgage
Advantages of a World Savings Loan
The CODI Indexed Loan | The COSI Indexed Loan | Advantages of a World Savings Loan | Index Performance Comparisons | A Tale of Three Brothers | Should You Pay off Your Mortgage?