Dual Index Mortgage

AAA

DEFINITION of 'Dual Index Mortgage'

A type of mortgage where the interest rate paid on the outstanding balance is indexed to a interest rate benchmark plus a margin, and the actual total mortgage payments are linked to a benchmark of wages and salaries for workers in a given economy or region. The initial mortgage payment is set at a certain level and rises or falls according to the wage and salary index.

The rate at which payments increase or decrease can differ substantially from the rate at which the actual interest rate on the mortgage rises or falls. When the payment is less than a calculated interest-only payment, based on the interest rate of the mortgage, negative amortization is created.

INVESTOPEDIA EXPLAINS 'Dual Index Mortgage'

Dual index mortgages do not exist in the United States, but are popular in Mexico and other Latin American countries which historically have suffered from high levels of inflation. This type of mortgage allows borrowers to purchase homes when there is a large level of inflationary risk.

However, dual index mortgages are similar in principal to payment-option adjustable-rate mortgages (ARMs), which are popular in high cost areas of the United States. Like dual index mortgages, payment option ARMs offer the borrower initial monthly payments with the potential for negative amortization.

RELATED TERMS
  1. Mortgage Index

    The benchmark interest rate an adjustable-rate mortgage's fully ...
  2. Benchmark

    A standard against which the performance of a security, mutual ...
  3. Index

    A statistical measure of change in an economy or a securities ...
  4. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  5. Deferred Interest

    The amount of interest that is added to the principal balance ...
  6. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
Related Articles
  1. ARMed And Dangerous
    Insurance

    ARMed And Dangerous

  2. How Interest Rates Affect The Housing ...
    Economics

    How Interest Rates Affect The Housing ...

  3. Make A Risk-Based Mortgage Decision
    Options & Futures

    Make A Risk-Based Mortgage Decision

  4. Option ARMs: American Dream Or Mortgage ...
    Home & Auto

    Option ARMs: American Dream Or Mortgage ...

Hot Definitions
  1. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  2. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  3. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  4. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  5. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  6. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
Trading Center