In the context of real estate financing, the margin refers to the percentage added by the lender to the underlying index to determine the adjustable-rate mortgage (ARM) interest rate. The margin remains constant throughout the loan term, while the index, typically based on a benchmark rate like the London Interbank Offered Rate (LIBOR) or the U.S. Prime Rate, may fluctuate. The combination of the margin and the index determines the fully indexed rate for the ARM.
Related terminology:
Adjustable-rate mortgage (ARM)
Fixed-rate mortgage
Index
Interest rate
Loan-to-value ratio (LTV)
Annual percentage rate (APR)
Amortization schedule
Rate cap
References:
- Investopedia: Understanding Mortgage Margins
- Bankrate: Margin Definition in Real Estate
- The Balance: What Is a Margin in an Adjustable-Rate Mortgage (ARM)?
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