What is a Constant Maturity Treasury (CMT)?

The constant maturity treasury rate (CMT) is a measure of the yield rate on a treasury security if it were issued that day. Lenders use this rate to help determine the rate that is applied to an adjustable rate mortgage, which is a mortgage with an interest rate that may change from time to time. 

Key takeaways

  • CMT Meaning: the constant maturity treasury is a measure used by the government. It estimates the interest rate on a treasury security if it’s issued that day. 
  • Mortgage lenders use the CMT rate to help determine the interest rate on an adjustable rate mortgage. 
  • Adjustable rate mortgages have interest rates that vary, in contrast with a fixed rate mortgage.
  • Some reverse mortgage options use adjustable interest rates, so it can be helpful to keep an eye on the CMT rate to determine what your likely rate may be. 

What is a constant maturity treasury?

A constant maturity treasury provides a snapshot of the rate on a treasury security at a specific time. Treasury securities are debt obligations secured through the Federal Government. Such securities can be bought and sold by investors hoping to secure returns. 

Examples of government-backed securities include treasury bonds, treasury notes, and treasury bills. Each can have its own rate and return. Each of these rates are taken into account when estimating the constant maturity rate, which is an average of different rates. 

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How is CMT calculated?

The US Treasury calculates CMT rates using a specifically designed function. This function takes into account the close-of-business yield rates on a few different securities:

  • Recently sold treasury bills of different maturity rates (like 4, 12, or 52 weeks)
  • Treasury notes, which take longer to mature (2-10 years)
  • Treasury bonds, which can take up to 30 years to mature

At the end of each trading day, quotes for these yields are taken, applied to the function, and the CMT rate is derived.

CMTs and mortgage interest rates

When applying for a mortgage, you may have the option to choose between a fixed-rate mortgage and an adjustable rate mortgage. Fixed rate mortgages have one interest rate that is maintained throughout the lifetime of the loan; adjustable rate mortgages may change interest rates. 

One basis for adjustable rate mortgages’ interest rates is the CMT rate. As the CMT rate fluctuates, a lender may alter your mortgage’s interest rate to reflect it. So, your rate may change on a weekly, monthly, or quarterly basis, depending on the terms of your loan. 

To find out more, read through our articles on reverse mortgage costs and what goes into your reverse mortgage interest rate

How does the CMT interest affect mortgage rates?

The CMT rate informs the interest rates that lenders apply to mortgage borrowers, sometimes called the CMT mortgage index. Lenders may start with the CMT and then apply other fees or factors to determine the ultimate interest rate a borrower pays. The CMT rate can change depending on different global economic factors, which can, in turn, affect your interest rate. It’s a good idea to ask your lender how your CMT mortgage rate will change over time. 

For more information, be sure to reach out to a GoodLife Home Loans Reverse Mortgage Specialist. 

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