ARM Margin

A A A

DEFINITION

A fixed percentage rate that is added to an index value to determine the fully indexed interest rate of an adjustable rate mortgage (ARM). The margin is constant throughout the life of the mortgage, while the index value is variable. For example, the index might be the prime rate, which varies according to market conditions, and the margin might be 2%. If the prime rate were 5% and the margin 2%, then the fully indexed interest rate would be 7%. If the prime rate rises to 6% (the margin remains constant), the fully indexed interest rate would be 8%.

INVESTOPEDIA EXPLAINS

An ARM's margin is a very important and often overlooked part of the loan's interest rate. The margin is frequently negotiable with the lender. Different margins should be expected with different indexes as various popular indexes differ in their historical values relative to each other. In other words, the lower the index level, the higher the expected margin. When various index/margin options are available to a borrower, an analysis should be performed to determine which is the most economical.


RELATED TERMS
  1. Indexed ARM

    An adjustable-rate mortgage on which the interest rate adjusts periodically ...
  2. Indexed Rate

    An interest rate charged on loans to borrowers that is calculated by taking ...
  3. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding balance ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by a lender to a ...
  5. Margin

    1. Borrowed money that is used to purchase securities. This practice is referred ...
  6. Prime Rate

    The interest rate that commercial banks charge their most credit-worthy customers. ...
  7. 2/28 Adjustable-Rate Mortgage - ...

    A type of adjustable-rate mortgage that has a two-year fixed interest rate period ...
  8. Mortgage Index

    The benchmark interest rate an adjustable-rate mortgage's fully indexed interest ...
  9. Conversion Option

    A clause associated with some adjustable-rate mortgages that allows the borrower ...
  10. Forbearance

    A temporary postponement of mortgage payments.
Related Articles
  1. Mortgages: Fixed-Rate Versus Adjustable-Rate
    Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

  2. Understanding The Mortgage Payment Structure
    Credit & Loans

    Understanding The Mortgage Payment Structure

  3. ARMed And Dangerous
    Insurance

    ARMed And Dangerous

  4. What is the difference between a 2/28 ...
    Investing

    What is the difference between a 2/28 ...

  5. Measuring The Benefits Of Home Ownership
    Home & Auto

    Measuring The Benefits Of Home Ownership

  6. 5 Things You Shouldn't Do During A Recession
    Budgeting

    5 Things You Shouldn't Do During A Recession

  7. Selling Premium As Small Caps Play Catch ...
    Options & Futures

    Selling Premium As Small Caps Play Catch ...

  8. Forecasting Mortgage Rates: Buy, Sell ...
    Investing Basics

    Forecasting Mortgage Rates: Buy, Sell ...

  9. What counts as
    Credit & Loans

    What counts as "debts" and "income" ...

  10. How does my debt-to-income (DTI) ratio ...
    Home & Auto

    How does my debt-to-income (DTI) ratio ...

comments powered by Disqus
Hot Definitions
  1. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  2. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  3. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  4. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
  5. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all of the plan’s risk – e.g.: retirement payment liabilities to former employee beneficiaries. The plan sponsor can do this by offering vested plan participants a lump-sum payment to voluntarily leave the plan, or by negotiating with an insurance company to take on the responsibility for paying benefits.
  6. XW

    A symbol used to signify that a security is trading ex-warrant. XW is one of many alphabetic qualifiers that act as a shorthand to tell investors key information about a specific security in a stock quote. These qualifiers should not be confused with ticker symbols, some of which, like qualifiers, are just one or two letters.
Trading Center