Mortgage Index

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Dictionary Says

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 Says

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.

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