ARM margin? The margin is a fixed percentage added to the index to determine your fully indexed interest rate. It is set when the loan originates and remains constant for the entire loan term.
What Is the ARM Margin?
The margin represents the lender's profit on top of the index. Typical ARM margins range from 2% to 3%. If the SOFR index is 4.5% and your margin is 2.5%, your fully indexed rate is 7%. The margin does not change when the index moves, so it provides a stable base for calculating your rate.
Margins can vary by lender and loan program. A lower margin means a lower overall rate for any given index level. When comparing ARM offers, pay close attention to the margin as well as the initial rate.
How the Margin Affects Your Rate
Since the margin is fixed, the only thing that changes with each adjustment is the index value. A loan with a 2% margin will always be 1% cheaper than a loan with a 3% margin assuming the same index. Over 30 years that 1% difference can add up to tens of thousands of dollars in interest.
Patrick Kevin Fagan recommends comparing the margin on every ARM quote you receive. A slightly higher initial rate with a significantly lower margin could save you money over time if you plan to hold the loan past the fixed period.
