Certificate of Deposit Index
Definition and meaning of Certificate of Deposit Index in real estate.
The certificate of deposit index is a financial index based on the average interest rates of six-month certificates of deposit. It is used by lenders as a benchmark to calculate interest rate adjustments for certain adjustable-rate mortgages.
In more detail
In an adjustable-rate mortgage, the interest rate fluctuates over time based on changes in a specific financial index, which is a benchmark interest rate used to track market changes. Lenders add a set margin, which is an extra percentage added to the index rate, to determine the borrower's new interest rate at each adjustment period.
Because certificates of deposit are slow to respond to market shifts, this index tends to adjust more gradually than other popular indices. While once common, its usage has declined in recent years as the mortgage industry has shifted toward other benchmarks.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | CODI |
| Underlying asset | Six-month certificate of deposit interest rates |
| Typical application | Adjustable-rate mortgage rate adjustments |
A homeowner with an adjustable-rate mortgage linked to the certificate of deposit index sees a modest increase in their monthly payment after the index rate rises slightly.
Frequently asked questions
How does the certificate of deposit index affect my mortgage payment?
If the index rate increases, your mortgage interest rate and monthly payment will go up at your next adjustment date; if the index decreases, your payment will go down.
Is the certificate of deposit index still widely used today?
No, while it is still used to service existing loans, newer adjustable-rate mortgages are typically linked to more modern benchmarks like the Secured Overnight Financing Rate.