Adjustable Rate Mortgage Loan: The Margin is Your Mortgage Lender’s Little Secret

If you are considering an Adjustable Rate Mortgage there are several things you need to know about your mortgage rate. Knowing how your lender adjusts your loan, which index it is tied to, and what the lender’s margin is can help you avoid payment shock. Here are several tips about Adjustable Rate Mortgages and how the lender marks up your interest rate to help you avoid paying too much for your mortgage loan.

The margin is the amount your mortgage lender marks up the index your Adjustable Rate Mortgage is tied to when resetting your mortgage rate. The lender’s margin determines how quickly your mortgage interest rate rises when the lender adjusts your loan. When comparing two loans with identical interest rates and indexes, the loan with the higher margin will cost more and reach its cap during rate swings more quickly. This is why it’s important to consider the margin when shopping for an Adjustable Rate Mortgage.

A common margin for Adjustable Rate Mortgages is 2.75%. If you see loan offers with a higher margin than this the lender is trying to get money out of you faster when adjusting your payment. When you’re shopping for an Adjustable Rate Mortgage the margin you pay is subject to negation just like most aspects of your loan. You might explore the option of paying a point to buy down the margin instead of lowering your initial mortgage rate. It is not uncommon for mortgage lenders to lower margins by half a point through the course of negotiation. Always ask your lender for a margin reduction before choosing an Adjustable Rate Mortgage.

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