DEFINITION of 'ARM Index'

The benchmark interest rate to which an adjustable rate mortgage is tied. An adjustable rate mortgage's interest rate consists of an index value plus a margin. The index underlying the adjustable rate mortgage is variable, while the margin is constant. There are several popular indexes used for different types of adjustable rate mortgages.

This is also referred to as the "fully indexed interest rate".

BREAKING DOWN 'ARM Index'

The index to which an adjustable rate mortgage is tied can make a difference over the life of the mortgage. For example, one popular mortgage index is the MTA index. It is a moving average calculation, and therefore has a "lag effect". If interest rates are expected to rise, a mortgage tied to the MTA index might be more economical than a mortgage tied to an index without a moving average calculation, such as the one-month LIBOR index. However, a borrower should consider more than the index when choosing an adjustable rate mortgage. Many other variables, such as the margin and the interest rate cap structure, are important considerations.

RELATED TERMS
  1. Mortgage Index

    The benchmark interest rate an adjustable-rate mortgage's fully ...
  2. Canadian Rollover Mortgage

    A home mortgage with an adjustable rate feature. The Canadian ...
  3. Mortgage Rate

    The rate of interest charged on a mortgage. Mortgage rates are ...
  4. Variable Rate Mortgage

    A type of home loan in which the interest rate is not fixed. ...
  5. Monthly Treasury Average Index ...

    The 12-month moving average of the one-year constant maturity ...
  6. Mortgage

    A debt instrument, secured by the collateral of specified real ...
Related Articles
  1. Personal Finance

    Shopping for a Mortgage in 2017? Use This Tool First

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2017 can all be done online.
  2. Personal Finance

    Adjustable Rate Mortgage: What Happens When Interest Rates Go Up

    Adjustable rate mortgages can save borrowers money, but they can't go into it blind. In order to benefit from an ARM, you have to understand how it works.
  3. Personal Finance

    5 Things You Shouldn't Tell Your Mortgage Broker

    Applying for a mortgage can be a strenuous process. Here are five things to avoid doing when meeting with your mortgage broker.
  4. Personal Finance

    Finding the Best Mortgage Rates in 2017

    As home-buying technology has progressed, the process of finding the best mortgages rates can all be done online. Here's how:
  5. Financial Advisor

    Effect of Fed Fund Rate Hikes on the Housing Market

    Understand what drives the federal funds rate and why the Fed would increase that rate. Learn about the effect of a rate increase on the housing market.
  6. Personal Finance

    Behind the Scenes of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  7. Personal Finance

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  8. Investing

    The Most Important Factors that Affect Mortgage Rates

    Discover what the most important factors are that affect mortgage interest rates. Factors range from inflation and economic growth to Federal Reserve activity, .
  9. Personal Finance

    Home Mortgage

    A home mortgage is a loan given by a bank, mortgage company or other financial institution for the purchase of a primary or investment residence.
  10. Personal Finance

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
RELATED FAQS
  1. What are the different types of subprime mortgages?

    Clarify your understanding of subprime mortgages. Learn about the different types, how they work and when they might be beneficial. Read Answer >>
Trading Center