What in the heck is the margin?
The margin is a fixed percentage and a constant amount that is added to the index (see last post) to determine what an interest rate will be for the next period of an adjustable rate mortgage, or as an example, in one year.
Most of the ARM margins vary somewhere between two and three percentage points.
Lets use an example of 2.25 % for the purposes of this discussion.
Using an initial rate of 7.50% with the One Year Treasuries Securities Index (see last post), if you add the margin of 2.25% you have a new adjustable rate of 9.75%.
Check with the lender to see what the margin is. What else can you think of that should be considered when addressing the margins application to the loan?
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The margin is also considered the bank's profit.
Indeed it is, Joan. Although it's also thought of as a way to determine the adjustment of the interest rate. Thanks.