MTA Index

Posted in Finance, Accounting and Economics Terms, Total Reads: 431
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Definition: MTA Index

The 12-Month Treasury Average Index is the moving average of the one-year Constant Maturity Treasury (CMT). It is used as an index for adjustable rate mortgages. The MTA index is calculated by summing the 12 most recent monthly CMT values and finding the arithmetic average. The MTA index is a moving average of the CMT values across the 12 recent months, it has a lag effect.


The lag effect can be understood with the following scenarios:

• If the 12 recent CMT values are increasing sequentially, then the MTA index value will not be as higher as the most recent or current CMT value

• If the 12 recent CMT values are falling sequentially, then the MTA index value will not be as low as the most recent or current CMT value


In some mortgages (e.g. payment option arms), the borrower has a choice of the indexes. The choice can be made with careful analysis of the fully indexed interest rate. The fully indexed interest rate of an adjustable rate mortgage is equal to the index value plus the margin rate. The index is variable while the margin rate is fixed for the whole life of the mortgage. A study of different indexes over a period of time showed relative behavior which was historically quite constant within a certain range. E.g. the one month LIBOR index is typically higher than the MTA index by about .1% to .5%. However, it is also seen that the lower the index is relative to another index, the higher the margin rate is likely to be.

 

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