ARM Margin

AAA

DEFINITION of 'ARM Margin'

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 'ARM Margin'

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. Conversion Option

    A clause associated with some adjustable-rate mortgages that ...
  2. Indexed ARM

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

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

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

    The amount charged, expressed as a percentage of principal, by ...
  6. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
Related Articles
  1. ARMed And Dangerous
    Insurance

    ARMed And Dangerous

  2. Mortgages: Fixed-Rate Versus Adjustable-Rate
    Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

  3. Understanding The Mortgage Payment Structure
    Credit & Loans

    Understanding The Mortgage Payment Structure

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

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

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center