The Interest Rate Margin Makes a Difference
This example illustrates how the margin impacts your interest rate on an adjustable rate mortgage.
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When a loan adjusts the margin is added to the index to determine the interest rate. The index rate will vary over time. The margin typically is fixed for the life of the loan. It should be clearly specified in your loan documents. This example shows a mortgage with no minimum interest rate. It highlights the role of the margin by examining a very unlikely scenario, the best case scenario where the index rate goes to zero in the 2nd month and stays at zero for the duration of the mortgage. Since there is no minimum rate, the borrower will be charged the 4.5% margin beginning in the second year.
Click on the Calculate button below to generate the amortization schedule for this example or enter your own information or explore the other examples.
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