Mortgage Interest Rates | Denver Mortgage Company | Mortgage Loan Interest

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What are indexes and margins?

These terms generally only apply to adjustable rate mortgages. If you have a Colorado Mortgage that is adjustable, your actual note rate is determined by 2 factors. The first is the index (similar to a stock) and the second is the margin, or in simple terms "profit margin" that is built into your Colorado Mortgage interest rate.

Indexes - Your adjustable rate mortgage can be "indexed" or based upon one of several different indexes, such as the 1 Year US Treasury, or the 6 month Libor, etc. Lenders offer various adjustable rate mortgages that are tied to one of the major indexes. The Colorado Mortgage note that you sign at closing will indicate what index your Colorado mortgage is tied to. This is the adjustable portion of your interest rate. This is what changes over time and causes your interest rate to go up or down.

Margins are the "fixed" portion of your interest rate. The margin is the "buffer" that your lender builds into your interest rate. The margin is specified in your Colorado Mortgage note along with the index. Margins are fixed and do not change over the life of the loan. Margins are commonly in the 1.75% to 2.5% range.

Your actual note rate, or "fully indexed rate" is determined by adding the current value of your index to the margin. If your loan is indexed to the 1 Year US Tresury for example and the current value of that index is 3.18% and your note specifies that your margin is 2.25%, your fully indexed or note rate is 5.43%. Over time and at specified intervals defined in your note, your Colorado Mortgage servicer will calculate your current interest rate by adding the current value of your index to your margin, to determine your current rate or fully indexed rate.

If the index that your Colorado Mortgage is tied to goes down, then your rate will go down. If it goes up, your rate (and payment) will go up.

Normally, your adjustable rate mortgage will have a fixed time period at the beginning of it's term where your rate does not change. For example, if you obtain a 5 year Arm, then you can expect your rate and payment to remain the same for the first 5 years and then it will begin to adjust as described above based on the current value of your index, plus your margin.

As a reputable Denver mortgage company, we are always here to discuss the details of any Colorado Mortgage loan products we sell, including whether it is fixed or adjustable and if it is adjustable, what the specific terms are, such as the index, margin and adjustment periods.

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