# Fully Indexed Interest Rate

- Fully Indexed Interest Rate
- The interest rate on an adjustable-rate loan that is calculated by adding the margin to an index level. The interest rate on an adjustable (sometimes known as variable) rate loan is tied to a benchmark interest rate, known as an index. Popular indexes for loans are: the prime rate, LIBOR, and various U.S. Treasury bill and note rates. When calculating the fully indexed interest rate, the index level varies according to market conditions but the margin is usually a constant value.
For example, the fully indexed interest rate on an adjustable rate mortgage tied to the six-month LIBOR index with a margin of 3% would be 10% if the six-month LIBOR index were at 7%. If the six-month LIBOR index were to adjust upwards to 8%, the new fully indexed interest rate would be 11%.

For some loans, the borrower may have the option of choosing between two or more indexes to which their loan will be tied. Most popular indexes are highly correlated with each other. In general, the lower the level of an index relative to other indexes, the higher the margin on the loan. However, the margin is frequently negotiable with the lender. The choice of the index and the margin, both of which are frequently overlooked by borrowers, can make a big difference over the life of an adjustable rate loan.

*Investment dictionary.
Academic.
2012.*

### Look at other dictionaries:

**Interest Rate Cap Structure** — Limits to the interest rate on an adjustable rate loan frequently associated with a mortgage. There are several different types of interest rate cap structures including an initial, periodic and lifetime interest rate cap structure. The initial… … Investment dictionary

**Interest-Only ARM** — An adjustable rate mortgage (ARM) with an initial interest only payment period. During the interest only period, only the calculated interest must be paid; no principal must be repaid. The length of the interest only period varies with each… … Investment dictionary

**Initial Interest Rate** — The interest rate that is initially assessed on an adjustable rate mortgage (ARM) and advertised in the origination process. The initial interest rate will be in force for a limited period of time, typically between 12 and 24 months. After this… … Investment dictionary

**Adjustable-rate mortgage** — A variable rate mortgage, adjustable rate mortgage (ARM), or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit… … Wikipedia

**5-1 Hybrid Adjustable-Rate Mortgage - 5-1 Hybrid ARM** — An adjustable rate mortgage (ARM) with an initial five year fixed interest rate. After this initial five year period, the interest rate begins to adjust on an annual basis according to an index plus a margin (or, the fully indexed interest rate) … Investment dictionary

**3/27 Adjustable-Rate Mortgage - 3/27 ARM** — A type of adjustable rate mortgage (ARM) frequently offered to subprime borrowers. These mortgages are designed as short term financing vehicles that give borrowers time to repair their credit until they are able to refinance into a mortgage with … Investment dictionary

**2/28 Adjustable-Rate Mortgage - 2/28 ARM** — A type of adjustable rate mortgage that has a two year fixed interest rate period after which the interest rate on the mortgage begins to float based on an index plus a margin. The index plus the margin in known as the fully indexed interest rate … Investment dictionary

**5-6 Hybrid Adjustable-Rate Mortgage - 5-6 Hybrid ARM** — An adjustable rate mortgage with an initial five year fixed interest rate after which the interest rate begins to adjust every six months according to an index plus a margin (or, the fully indexed interest rate). The index is variable while the… … Investment dictionary

**Indexed Rate** — An interest rate charged on loans to borrowers that is calculated by taking the sum of a benchmark index interest rate and a specified margin. The indexed rate is used to calculate the interest rate on an adjustable rate mortgage (ARM). The… … Investment dictionary

**Interest-only loan** — An interest only loan is a loan in which for a set term the borrower pays only the interest on the principal balance, with the principal balance unchanged. At the end of the interest only term the borrower may enter an interest only mortgage, pay … Wikipedia