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. Benchmark

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

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

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

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

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  6. Mortgage Index

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

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