What Is a Mortgage Loan Margin?

A fixed rate mortgage has a single rate for the term. With an adjustable rate mortgage, or ARM, the rate changes periodically based on the interest rate index and the margin.

Function

The lender adds the market interest rate to your margin to find the new interest rate every time the interest rate changes. For example, if you have a 2.1 percent margin and the market rate equals 4.3 percent, the new mortgage interest rate would be 6.4 percent.

Considerations

Lenders set your margin based on your creditworthiness: the less likely you are to default on the loan, the lower your margin will be. Lenders look at your credit score, existing debt, income and employment situation to figure your margin.

Time Frame

Unlike the interest rate on an ARM mortgage, the margin will remain the same for the life of the loan. When you take out a mortgage, shopping around to find the lowest margin can save you thousands over the life of the mortgage.

References

• The Federal Reserve Board: Consumer Handbook on Adjustable Rate Mortgages
• Freddie Mac: Adjustable-Rate Mortgages
• Lendingtree: Mortgage Margin