What factor does "margin" represent in an adjustable-rate mortgage?

In the context of an adjustable-rate mortgage, "margin" refers to the amount that is added to the index rate to determine the new interest rate on the loan at each adjustment period. The index rate is typically a benchmark interest rate that fluctuates based on market conditions, while the margin is a fixed percentage that remains constant for the duration of the loan.

This relationship between the margin and the index rate is crucial because it impacts the overall interest expense for the borrower. For instance, if the index is at 2% and the margin is 2.5%, the new interest rate for the borrower would be 4.5% at the time of adjustment.

Understanding the margin helps borrowers anticipate how their payments might change over time as the index rate varies, making it an essential component in evaluating the overall affordability and long-term cost of an adjustable-rate mortgage.