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Ask the Biz Brain

Thursday, July 01, 2004
I am in the process of building and buying a new home. I will be putting approximately 50 percent down for the new house from the sale of my existing home and cash re serves. I was presented with a CODI mortgage as an option for the new home. I have read most of the information but would like your opinion on the negatives of this kind of mortgage.

— Pondering in Vernon

For those who may not be up to date on the latest in mortgage financing, CODI refers to a cost of deposits index, which is a type of variable rate mortgage.

In this case, a CODI mortgage uses the monthly yields on three-month certificates of deposit as published by the Federal Reserve Board. The rate is a simple average using the most recent 12 months of data, according to Bankrate.com.

Experts agree this means the rates on CODI mortgages are less likely to move up or down as quickly as other conventional mortgages, which are pegged to other interest rates.

Alan Starinsky, a partner at Redfield, Blonsky and Co. in Cranford, says if you are planning to stay in the house for only a few years, then the risk of taking a CODI mortgage is limited.

But if you are planning to stay a long time, you might want to lock in a fixed interest rate, especially since interest rates are rising, he says.

Tim Nagle, president of Tim Nagle Loans in Summit, a mortgage broker that offers CODI loans, says they make sense for many consumers.

While few institutions offer these loans and many consumers are not familiar with them, he expects a surge of interest.

“They are confusing and extremely sophisticated,” he says. “But when you get inside the numbers, they are consumer friendly.”

— David Schwab