Mortgage Index

AAA

DEFINITION of 'Mortgage Index'

The benchmark interest rate an adjustable-rate mortgage's fully indexed interest rate is based on. An adjustable-rate mortgage's interest rate, known as the fully indexed interest rate, is comprised of an index value plus a margin. The margin tends to be constant, but the index's value is variable. Several benchmark interest rates serve as mortgage indexes.

INVESTOPEDIA EXPLAINS 'Mortgage Index'

Some common mortgage indexes include: the prime lending rate, the one-year constant maturity treasury (CMT) value, the one-month, six-month and 12-month LIBORs, as well as the MTA index, which is a 12-month moving average of the one-year CMT index.

The index that an adjustable-rate mortgage is tied to is an important factor in the choice of a mortgage. For example, if a borrower believes that interest rates are going to rise in the future, the MTA index would be a more economical choice than the one-month LIBOR index because the moving average calculation of the MTA index creates a lag effect.

RELATED TERMS
  1. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  2. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  3. Fully Indexed Interest Rate

    The interest rate on an adjustable-rate loan that is calculated ...
  4. ARM Index

    The benchmark interest rate to which an adjustable rate mortgage ...
  5. Payment Option ARM Minimum Payment

    An option to make minimum payments on an payment option ARM, ...
  6. Two-Step Mortgage

    A mortgage that offers an initial fixed-interest rate for a period ...
RELATED FAQS
  1. What role did securitization play in the U.S. subprime mortgage crisis?

    The securitization of subprime mortgages into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) ... Read Full Answer >>
  2. How often is interest compounded?

    Interest can be compounded on any given frequency schedule. Common interest compounding time frames are daily, monthly, semi-annually ... Read Full Answer >>
  3. How does the loan-to-value ratio affect my mortgage payments?

    Several factors affect the mortgage rate you can obtain when you purchase a home. Lenders analyze credit histories and scores ... Read Full Answer >>
  4. What's the difference between a collateralized debt obligation (CDO) and a collateralized ...

    A collateralized mortgage obligation, or CMO, is a type of mortgage-backed security (MBS) issued by an lender that handles ... Read Full Answer >>
  5. What is the difference between a savings & loan company and a bank?

    Savings and loan (S&L) companies provide many of the same services to customers as banks, including deposits, loans, ... Read Full Answer >>
  6. Why does the loan-to-value ratio matter?

    For mortgage lenders and borrowers, the loan-to-value ratio is an important factor in determining the repayment terms of ... Read Full Answer >>
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. Home & Auto

    Option ARMs: American Dream Or Mortgage Nightmare?

    Option adjustable rate mortgages could make or break your home-buying experience.
  5. Credit & Loans

    Is A 30-Year Mortgage Really Best?

    It's the most popular choice, but home buyers with 30-year mortgages may be paying more to finance their home than they need to.
  6. Credit & Loans

    What Are The Pros and Cons Of A 15-Year Mortgage?

    The shorter term, and higher monthly payment, are only part of the picture.
  7. Credit & Loans

    Which Is Better: A 30-Year Or 15-Year Mortgage?

    The difference in monthly payments is what homebuyers think of first when they compare the two. But have you considered these other points?
  8. Credit & Loans

    Is It Worth Buying A Second Home To Rent?

    Mortgage interest rates are low, but consider these dos and don'ts before making the leap into rental property ownership.
  9. Credit & Loans

    How To Combine Two Mortgages Into One?

    If you have a second mortgage as well as a primary, does it make sense to consolidate into a single loan? Here's how to figure it out.
  10. Credit & Loans

    Should I Consolidate My Two Mortgages?

    Consolidating your loans or mortgage may make sense for you, especially when interest rates are low. Here's what you should know.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center