What is a typical index used for adjustable-rate mortgages?

The U.S. Treasury is a typical index used for adjustable-rate mortgages (ARMs) because it provides a reliable benchmark for the interest rates on these types of loans. This index reflects the yield on U.S. government securities, which are considered very low-risk and a stable measure of borrowing costs in the economy. When a borrower takes out an ARM, the interest rate is usually tied to a specific index, and the U.S. Treasury yields are commonly employed due to their correlation with broader economic conditions and their transparency.

Indexes such as the Consumer Price Index and the Commodity Price Index are more focused on measuring inflation and price movements in goods and services, rather than serving as a benchmark for lending rates. The Dow Jones Industrial Average, which reflects stock market performance, does not relate to mortgage rates and thus is not relevant for ARMs. Therefore, using the U.S. Treasury yield as an index for adjustable-rate mortgages makes sense, as it provides a standardized and predictable framework for determining interest adjustments over the life of the loan.