Reset Margin

DEFINITION of 'Reset Margin'

The difference between the interest rate of a security and the index on which the security's interest rate is based. The reset margin will be positive, as it is always added to the underlying index. This feature is most common with a floating-rate security. The reset margin is added to a reference rate, such as LIBOR, for floating rate obligations.

BREAKING DOWN 'Reset Margin'

For example, the interest rate of a floating-rate note is based on LIBOR plus 0.5%. The 0.5% is the reset margin, meaning that if LIBOR is 1% then the interest rate on the note is 1.5%. Banks can borrow money at LIBOR and, in order to realize profits on loans, will add the reset margin when lending funds.

RELATED TERMS
  1. Reset Date

    The point in time when the initial fixed interest rate on an ...
  2. Reset Rate

    The new percentage of interest that a mortgagor must pay on the ...
  3. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  4. LIBOR Flat

    An interest rate benchmark used to establish the floating interest ...
  5. ICE LIBOR

    See LIBOR
  6. Discount Margin - DM

    The return earned in addition to the index underlying the floating ...
Related Articles
  1. Fundamental Analysis

    The Importance Of LIBOR In Financial Markets

    What is LIBOR and why are its interest rates so important to the financial markets?
  2. Mutual Funds & ETFs

    Floating-Rate Mutual Funds: Rewards And Risks

    In an economy with low interest rates, investors need to get creative in order to reap high returns.
  3. Economics

    What Is The Relationship Between The Federal Funds, Prime And LIBOR Rates?

    The prime rate and LIBOR rate, two of the most prominent benchmark rates, tend to track the federal funds rate closely over time. However, during periods of economic turmoil, LIBOR appears more ...
  4. Investing

    Why BBA LIBOR Was Replaced By ICE LIBOR

    We track the reason behind the change in LIBOR's prefix from BBA to ICE.
  5. Investing

    Citi Borrowers' Home Equity Payments Poised to Rise

    Defaults could rise as Citigroup home equity borrowers who had been paying interest only are about to see monthly payments increase an average of 165%.
  6. Options & Futures

    Margin Trading: Conclusion

    Here's the bottom line on margin trading: You are more likely to lose lots of money (or make lots of money) when you invest on margin. Now let's recap other key points in this tutorial: ...
  7. Economics

    What is a Subprime Mortgage?

    Subprime mortgages are offered to borrowers with low credit ratings, usually 600 or below.
  8. Credit & Loans

    Adjustable Rate Mortgage: What Happens When Interest Rates Go Up

    Adjustable rate mortgages can save borrowers money, but they can't go into it blind. In order to benefit from an ARM, you have to understand how it works.
  9. Options & Futures

    Margin Trading: What Is Buying On Margin?

    The Basics Buying on margin is borrowing money from a broker to purchase stock. You can think of it as a loan from your brokerage. Margin trading allows you to buy more stock than you'd be able ...
  10. Investing

    How Tom Hayes Fixed Libor 

    For such an important number, the Libor rate was an easy fix. How did Tom Hayes, the main trader involved in the rate fixing scandal, do it?
RELATED FAQS
  1. How did the LIBOR scandal affect interest rate swaps?

    Find out how the LIBOR scandal directly enriched some interest rate swap traders and harmed others by understating the real ... Read Answer >>
  2. How is Libor determined?

    Libor is the major rate used to price debt stock. Libor is actually a set of several benchmarks that reflect the average ... Read Answer >>
  3. Where on the internet can I find LIBOR rate information?

    Learn what the LIBOR is, which website provides general LIBOR information and which website provides ICE LIBOR data going ... Read Answer >>
  4. How can LIBOR be used as an economic indicator?

    Learn how the LIBOR is used, how it is calculated and how it can be used with Treasury bill rates to gauge the health of ... Read Answer >>
  5. How did LIBOR come into use?

    Learn about the significance of the London Interbank Offered Rate, or LIBOR, and the history of how the daily LIBOR became ... Read Answer >>
  6. Is an adjustable rate mortgage (ARM) safe?

    Learn why an adjustable rate mortgage (ARM) can be a safe option as long as the borrower is familiar with the underlying ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center