Mortgage Glossary
Index Rate
Defined by Onias Derilus, Mortgage Capital · NMLS# 1859012 · Florida licensed mortgage broker
An index rate is the benchmark interest rate that an adjustable-rate mortgage is tied to, determining how the rate moves after the fixed period.
What Index Rate means
Common indexes include SOFR and Treasury rates. When an ARM adjusts, the new rate equals the index plus a fixed margin, subject to caps. Borrowers should know which index their loan uses and how it has behaved.
Florida example
A 5/1 ARM in Florida adjusted to the SOFR index plus a 2.75% margin, so when the index sat at 4%, the new rate became 6.75%, within the loan's caps.
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