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%.


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.

  1. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  2. Adjustable-Rate Mortgage - ARM

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

    The amount charged, expressed as a percentage of principal, by ...
  4. 2/28 Adjustable-Rate Mortgage - ...

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

    The benchmark interest rate an adjustable-rate mortgage's fully ...
  6. Prime Rate

    The interest rate that commercial banks charge their most credit-worthy ...
Related Articles
  1. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  2. Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  3. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  4. Credit & Loans

    HARP Loan Program: Help for Underwater Mortgages

    If you are underwater on your mortgage, this program may be just what you need to help build up equity in your home.
  5. Insurance

    6 Reasons To Avoid Private Mortgage Insurance

    This costly coverage protects your mortgage lender - not you.
  6. Credit & Loans

    Pre-Qualified Vs. Pre-Approved - What's The Difference?

    These terms may sound the same, but they mean very different things for homebuyers.
  7. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  8. Home & Auto

    9 Things You Need To Know About Homeowners' Associations

    Restrictive rules and high fees are just some of the things to watch out for before joining an HOA.
  9. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  10. Fundamental Analysis

    Using Decision Trees In Finance

    A decision tree provides a comprehensive framework to review the alternative scenarios and consequences a decision may lead to.
  1. What is the difference between a 2/28 and a 3/27 ARM?

    An adjustable rate mortgage (ARM) is a type of mortgage that has a fixed interest rate for a certain time period at the beginning ... Read Full Answer >>
  2. How many FHA loans can I have?

    Generally, the Federal Housing Administration (FHA) does not insure more than one mortgage per borrower. This is to prevent ... Read Full Answer >>
  3. Are FHA loans assumable?

    Loans insured by the Federal Housing Administration (FHA) on or after Dec. 15, 1989, are assumable by qualifying borrowers. ... Read Full Answer >>
  4. How accurate are online mortgage calculators?

    Online mortgage calculators are accurate to the extent that the calculator itself is asking for the right pieces of information ... Read Full Answer >>
  5. Are mortgage rates negotiable?

    Mortgages are just as negotiable as any other product or service. Whether it's a new home purchase or refinancing of an existing ... Read Full Answer >>
  6. Are FHA loans fixed?

    An FHA loan is a mortgage loan backed by the government that offers more flexible lending requirements than those of conventional ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  2. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  3. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  4. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  5. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
  6. Discount Bond

    A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the ...
Trading Center