What is Index and Margin?
The index and margin are the two components that determine the interest rate on an adjustable-rate mortgage: a market index plus a fixed margin.
On an adjustable-rate mortgage, the index is a published market rate, such as SOFR, that moves over time, while the margin is a fixed percentage added by the lender. Together they form the fully indexed rate, which is the rate your loan can adjust to after the initial fixed period. Borrowers see these terms in the loan estimate and note when comparing adjustable-rate offers. Watch for how often the index is measured and whether the margin is constant for the life of the loan. A higher margin increases your rate regardless of the index, so compare both components across lenders.
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