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 Rate

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

    An interest rate benchmark used to establish the floating interest ...
  3. Reverse Floater

    A floating-rate note in which the coupon rises when the underlying ...
  4. LIBOR Curve

    A graphical representation of various maturities of the London ...
  5. LIBOR Scandal

    A scandal in which financial institutions were accused of fixing ...
  6. 5-6 Hybrid Adjustable-Rate Mortgage ...

    An adjustable-rate mortgage with an initial five year fixed interest ...
Related Articles
  1. Markets

    The Importance Of LIBOR In Financial Markets

    What is LIBOR and why are its interest rates so important to the financial markets?
  2. Markets

    An Introduction To LIBOR

    This influential rate is published daily in Britain, and felt all around the world.
  3. ETFs & Mutual Funds

    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.
  4. Markets

    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 ...
  5. Investing

    Why BBA LIBOR Was Replaced By ICE LIBOR

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

    Two Alternatives for the U.S. LIBOR Benchmark Rate

    Working with the Fed, major Banks have identified two strong alternatives for U.S. credit market to replace LIBOR
  7. Trading

    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: ...
  8. Markets

    What is a Subprime Mortgage?

    Subprime mortgages are offered to borrowers with low credit ratings, usually 600 or below.
  9. Trading

    Intermediate Guide To E-Mini Futures Contracts - Margin

    Margin is essentially a loan that a brokerage firm extends to a client (the trader or investor) that is used for the purchase of trading instruments. Margin trading allows traders and investors ...
  10. Managing Wealth

    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.
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 does LIBOR compare to the Federal Reserve rate as an accurate indicator?

    Explore a comparison of the predictive efficacy of the Federal Reserve's fed funds rate and the Intercontinental Exchange's ... Read Answer >>
  3. 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 >>
  4. 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 >>
  5. Why is LIBOR sometimes referred to as LIBOR ICE?

    Learn what the LIBOR rate is, why there was a change in administration from BBA to IBA, and why LIBOR is often referred to ... Read Answer >>
  6. What are the differences between the Federal Funds Rate and LIBOR?

    Learn the key differences between the federal funds rate and the London Interbank Offered Rate, including currency denomination ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center