For the last twenty years Federal Reserve Bank Chairman Alan Greenspan has controlled the rates at which banks lend money to their prime customers. The Federal Reserve loan rate was raised or lowered by Alan Greenspan in an effort to control the growth of the economy. If he believed the economy was growing too fast and inflation would follow, the prime rate was raised and conversely if the economy was slowing down the rate was lowered to stimulate it. As a result banks and other money lenders, in order to protect themselves against changes in the interest rate, began lending money at variable and adjustable rates.

Since the borrower wanted protection against very rapid rises in the rate on his mortgage indexes were used as a measure to increase and decrease the interest charged on mortgages. Some of the more commonly used indexes are the prime index, MTA, Libor, COFI, and U.S. Treasury Bonds for one year.

All of the above indexes with the exception of the Libor are indirectly tied into the prime rate set by the Federal Reserve Bank.

The indexes frequently used are the 11th District cost of funds (COFI), 12 month Treasury (MAT), certificate of Deposit Index (CODI) and the London inter Bank offering Rates (LIBOR).

A review of the principal indexes mentioned above shows little or no difference in the indexes. In December 1989, the CODI index was 9%, the MTA index was 8.5% and the COFI was 8.5%. The three indexes dropped steadily until December 1993; at that point all three indexes were around 4%. By December 1995, all three indexes were up, CODI and MTA were 6% but the COFI index was 5.25%. Between December 1995 and June 1998, the indexes were stable with little or no movement. Between June 1998 and December 2000 all three indexes climbed steadily and then dropped to new lows in December 2004. At this time the CODI and MTA were 1.75% and the COFI index was 2.5%. The rates as of December 2005 for all three indexes were right around 4%. The 4% index rate plus the cost of loan could produce a rate above 7% with a maximum of 13%.

In an ever-unsteady market, the borrower can only be sure of one thing and that is that changes of interest rates are inevitable.