Margin
The profit that a lender makes on a loan
All loans have a margin to make it worthwhile for lenders to stay in business. A margin also refers to an adjustable rate’s mortgage’s (ARM) interest rate, which is made up of the margin plus the index, a value that represents overall market rates. A lender’s margin is usually around 2.5%. Unlike the index, the margin on a loan never changes. If you are comparing two loans with the same index, choose the loan with the lower margin. To find out the margin on a loan, simply ask the lender. Some lenders may drop the margin by a hair in exchange for a sum paid up-front on the closing date.
To find out the margin, ask your lender which index is tied to your ARM. Possible indices include the Cost of Fund Index (COFI) and Treasury bills. Then subtract the index value from your loan's interest rate. Note that your lender rounds off the interest rate to the nearest .125.