The MTA index refers to the monthly United States Treasury average index, which primarily is used by mortgage lenders that issue adjustable-rate mortgages. Lenders use the MTA index to determine the cost of variable-rate loans. The most common MTA index that lenders use is the one-year MTA index, which averages Treasury bill movement over the course of 12 months. The Federal Reserve Board publishes the one-year MTA index on the first Tuesday of each month, and the index can be found listed in the G13 Selected Interest Rates section.
The Federal Reserve Board calculates the MTA index by averaging the monthly yields of U.S. Treasury securities over the course of the previous 12 months. The average is then adjusted to a one-year constant maturity Treasury index, known as the one-year CMT. The monthly average of U.S. Treasury yields represent the securities that are sold by the government to have money for national spending. The U.S. Treasury securities are backed only by the good faith of the U.S. government.
Many adjustable-rate home mortgage loans, ARM's, that use the 12-month MTA index have interest rates that fluctuate every month, without the borrower ever realizing that the rate is increasing. With an adjustable-rate mortgage, the borrower's monthly payment will increase as the interest rate increases. These home mortgage loans usually set a specific time period for the monthly payment to be reset, and some loans stipulate that the interest rate cannot go over a set interest rate limit, known as a cap. Many borrowers who find adjustable-rate mortgages cumbersome decide to refinance the loan to a fixed-rate loan, with the option of the interest rate being calculated based on the 12-month MTA index. The advantage to having a loan tied to the MTA index is that the index is slow moving, which means interest rates do not fluctuate widely in a short period of time.