A monthly treasury average, or MTA, mortgage is a type of option adjustable rate mortgage that is tied to U.S. Treasury bill interest rates. These loans offer more flexibility than a fixed mortgage with less volatility than ARMs based on the prime rate or another monthly index. The term of an MTA mortgage is 30 years, but you may pay it off in only 15 years if you choose to pay more than the minimum each month.
The interest rate of an MTA mortgage is based on the 12-month average of the rate for a one-year U.S. Treasury bill plus the lender's margin rate. Because it is based on a yearly average, the rate on an MTA changes more slowly than the rate of a conventional ARM. This allows you to adjust your budget for a higher payment instead of being surprised when your monthly minimum suddenly jumps to a new level.
MTA mortgages give you the flexibility of choosing from four different payment amounts. You may pay only the interest due, a minimum payment, the amount required to pay off the loan in 15 years or the amount required to pay off the loan in 30 years. You can change your payment amount each month. The minimum payment is based on a lower interest rate than the fully-amortized payments. This rate is known as the "start" rate and is usually between 1 or 2 percent. The start rate increases slightly each year, raising the minimum payment.
After five years, an MTA mortgage must be recalculated to amortize the outstanding balance over the remaining 25 years. If you have only been making minimum payments, there may be unpaid interest that has accumulated over the first five years of the loan. The lender will add this back into the balance before calculating your new payment.
MTAs work well for people who are self-employed or work on commission and have inconsistent income. You can pay only the minimum when you need to save money and then increase your payments in the months when you have the funds. You may be able to improve your portfolio's overall rate of return by investing your monthly savings into securities that pay more than the loan's interest rate. However, if you do not have the discipline to invest your savings instead of spending the extra cash each month, an MTA mortgage may not be the best choice for you. The recast after five years may increase your payment to a level you can no longer afford.
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