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Margin 

"What is a margin? And how can it affect my payments?" A margin is a fixed number that helps to determine what your actual interest rate is going to be. The margin is a number that is added to your rate index to determine your final rate. Margin's are most common with adjustable rate mortgages. The higher your margin, the worse your rate will be and the lower your margin the better you rate will be. Therefore, pay attention to your margin whenever you are obtaining an adjustable rate mortgage to make sure you are not paying too high of a margin.

Depending on if you are in a Prime or High Risk mortgage, the margin can make or break your loan. Most High Risk mortgages don't allow the mortgage to fall below the starting rate. All Prime mortgages are truly dependent on the adjustable index your mortgage is based on and the fixed margin portion. Your mortgage could conceivably drop down to what the margin is - this is predicated by the fact that the index "could" drop to zero.

The margin is the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.

The Margin of your ARM Adjustable Rate mortgage becomes most important when your mortgage passes the end of its fixed rate introductory period, often called a teaser rate or start rate. Once the fixed rate period expires, your monthly payments are calculated using the current level of the Index plus the Margin which was determined when you took out the mortgage. Because of this, higher margin loans, such as Option ARM loan products, have a tendency for the payments to jump. Borrowers with margin woes often choose a fixed refinance as their ARM approaches the end of the fixed rate period.

A margin is a constant numerical value that the lender adds to the index (LIBOR, MTA, COFI, etc.) associated with your adjustable rate mortgage in order to compute your interest rate. As the index value changes, so will your interest rate.

Start by calculating your rate as if it adjusted today. If your rate will be a lot higher than the starting rate, consider a product with a lower rate or a fixed rate if you plan to live in the home after the rate adjusts.

Your Margin is added to the pre-determined index (LIBOR or MTA)to arrive at your present rate.


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