Definition
The margin is a fixed percentage added to the index rate to determine your ARM's interest rate. It's set at closing and never changes, but the index fluctuates. The new rate equals index + margin. Comparing margins between lenders matters.
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Margins typically range from 1.5% to 3% and vary by lender and loan program. The margin is set at closing and doesn't change, while the index fluctuates. The new rate after adjustment equals the current index plus the margin.
Pro Tip
When comparing ARM offers, a lower margin is favorable; even small margin differences compound significantly over time.
Example
An ARM has a margin of 2.5%. If the index (SOFR) is 4.75% at adjustment, the new rate is 7.25% (4.75% + 2.5%).