How to Determine the Index Value on a Home Loan

An adjustable rate mortgage, commonly called an ARM loan, is a home loan whose interest rate and payment can adjust periodically. These types of loans were commonly made from 2000 through 2007, and were a major contributor to the housing meltdown and credit crisis of 2008. These loans have an index and a margin, which are used to calculate the mortgage rate.

Step 1

Collect your mortgage paperwork that you received when you closed your mortgage. This is often a large package of sheets and documents. Look for the following documents: Mortgage Note or Adjustable Rate Mortgage Note and the Adjustable Rate Rider.

Step 2

Look though the paperwork to make sure they are indeed your copies--sometimes the lender copies are slipped into the customer package by accident.

Step 3

Look for the following words: margin, index, rate ceiling (maximum), rate floor (minimum). These are the figures used to calculate your new mortgage rate. The margin will be a number (usually low -- between 1 percent and 3 percent) and the ceiling and floor will be the maximum and minimum, respectively, that your mortgage rate can be. The index will not be a number, but likely a word like: Prime Rate, LIBOR, or 6 Month T-Bill. These rates change from month to month.

Step 4

Look up the current value of your index. You will need a current copy of the Wall Street Journal or the Internet, including rates by Bankrate.com (See Resources). These indexes change usually each month.

Step 5

Determine your new mortgage rate by adding the current index to your margin. Your new mortgage payment will be based on this interest rate for the following month.

Step 6

Make sure you know when and how often your mortgage rate will adjust. To find this, look carefully at your Mortgage Note. Most ARM loan rates will adjust on the first of the month, and then each month thereafter. This means that for the remainder of your mortgage, your rate could adjust each month. Remember that your mortgage rate will only change when your index changes. This depends on market conditions--changes in the economy, Wall Street and corporate lending.