Mortgage Index

See: Mortgage.

Fixed-rate mortgages have a single rate for the life of the loan. A fixed-rate mortgage with a 5.5% rate has you paying 5.5% each and every year for the entire 30-year span. An adjustable-rate mortgage works differently. Instead of having the same rate year after year, the rate changes based on underlying conditions. It fluctuates as overall rates change.

A mortgage index provides the basis for these fluctuations. It exists as a compilation of current rates, creating a benchmark for changes in adjustable-rate loans.

The terms of an adjustable-rate mortgage will detail which mortgage index will be used in defining the rate changes. Common choices include the prime lending rate, LIBOR, or the rate paid by U.S. Treasury notes.