What Is a Mortgage Margin?

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A mortgage margin is the markup that the bank adds on to the index, or the financial index that drives the rate on the loan, so the margin is essentially the profit made by the bank. Understand more about mortgage margins with advice from an experienced mortgage broker in this free video on personal finance.

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Video Transcript

Hi, this is Matt McKillen with Innovative Financial Group. I recently got a call from a client and they had a question about their adjustable rate loan, and the questions post was, "what is the mortgage margin?" Basically, the way an adjustable rate loan works is there's three parts to your mortgage. There's what's called the index, and the index is the financial index that drives the rate on your loan which can possibly change maybe every six months to twelve months. The second part of the equation is what's called the margin. Now what the margin is, is that's a percentage point that's added over and above the index and that's what the banks profit is on your loan. So to give you an example, in real easy terms, lets say that your index is four percent, that's the money market that's driving the rate on your mortgage. The bank may have a margin on top of that, which is two percent. So your true index, or your true fully index rate on that loan is actually the two combined together so you'd be paying a rate of six. So if your index goes down to three percent and your margin is two percent, now your rate changes down to five. So, basically, to recap what a margin is, the margin is really the markup of what the bank is charging on top of the index, to determine what your final rate is, and that's generally their profit. Again, thanks for asking the question, my name if Matt McKillen with Innovative Financial Group.

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